FINANCIAL HIGHLIGHTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED YEAR-END DATA: 2000 1999 1998
- --------------------------------------------------------------------------------
NET INCOME $ 7,708 $ 7,189 $ 6,034
- --------------------------------------------------------------------------------
TOTAL ASSETS 568,413 497,535 480,929
- --------------------------------------------------------------------------------
TOTAL DEPOSITS 510,260 444,088 430,750
- --------------------------------------------------------------------------------
TOTAL SECURITIES 154,906 162,996 169,104
- --------------------------------------------------------------------------------
TOTAL LOANS 344,299 287,933 245,804
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 55,156 47,575 44,461
- --------------------------------------------------------------------------------
TRUST DEPARTMENT
ASSETS (BOOK VALUE) 709,732 651,469 549,321
- --------------------------------------------------------------------------------
FINANCIAL RATIOS:
- --------------------------------------------------------------------------------
RETURN ON AVERAGE ASSETS 1.47% 1.48% 1.33%
- --------------------------------------------------------------------------------
RETURN ON AVERAGE EQUITY 15.30 15.67 14.21
- --------------------------------------------------------------------------------
CAPITAL LEVERAGE RATIO 9.60 9.47 9.19
- --------------------------------------------------------------------------------
RISK BASED CAPITAL:
TIER I 19.10 19.52 18.53
- --------------------------------------------------------------------------------
TOTAL 20.41 20.79 19.61
- --------------------------------------------------------------------------------
PER SHARE:
- --------------------------------------------------------------------------------
EARNINGS - BASIC $ 2.55 $ 2.39 $ 2.00
- --------------------------------------------------------------------------------
EARNINGS - DILUTED 2.49 2.32 1.94
- --------------------------------------------------------------------------------
BOOK VALUE 18.28 15.80 15.44
- --------------------------------------------------------------------------------
[REPRESENTATION OF GRAPHIC]
NET INCOME
(IN MILLIONS)
1996 $7.71
1997 $7.19
1998 $6.03
1999 $4.90
2000 $3.87
TOTAL ASSETS
(IN MILLIONS)
1996 $568
1997 $498
1998 $481
1999 $443
2000 $400
DEPOSITS
(IN MILLIONS)
1996 $510
1997 $444
1998 $431
1999 $401
2000 $362
EQUITY
CAPITAL
(IN MILLIONS)
1996 $55.2
1997 $47.6
1998 $44.5
1999 $39.4
2000 $35.6
DEAR SHAREHOLDERS
AND FRIENDS
This is the report of results achieved in the first year of the
new Century and at the beginning of our 80th year as your
[LOGO] independent, Community Bank. There are several families who own
our shares that are in the fifth generation of ownership. As we
all know, a community bank cannot be successful without the
long-term commitment of individuals who understand the great
value of a hometown bank. So whether you bought your shares last
week or have 80 year old shares, thank you for believing in what
we do.
The year 2000 was an active year. As you know we purchased
Chatham Savings, FSB on January 7, 2000, and spent considerable
time and effort to welcome and integrate their customers into our
fold. We are pleased with the results as necessary cost savings
were achieved.
In last year's annual report, we reported total assets for
Peapack-Gladstone Financial Corporation of $423,000,000. With the
Chatham merger, its two branches, the opening of the new branch
on Main Street New Vernon and sustained growth within the Bank,
we now report total assets of $568,000,000 as of the end of 2000,
an increase of 34%.
We continue to feel that the extension of our market into
New Vernon, Chatham Township and Chatham Borough will become
increasingly important to us as the years go by. There are
tremendous numbers of households and businesses to which we can
provide our version of high touch banking service. We now have
two new business calling officers and a full time new business
PGB Trust and Investment officer located in our Chatham Main
Street office. We will build our business there as we gain the
confidence of our new customers.
We are also pleased to report that our 15th branch in
Hillsborough, New Jersey will be opening in February.
Hillsborough is a tremendously active community and we look
forward to being a part of it. Continuing consolidation in our
industry should work in our favor, particularly in Hillsborough.
We have reported record earnings for 2000, the fourth year
in a row. Net income, excluding Chatham Savings, FSB merger
related charges of $423,000, net of tax, increased to $8,131,000
a 13.1% increase over the $7,189,000 reported last year. Earnings
after all merger related expenses were $7,708,000, an increase of
7% over the previous year. We are particularly pleased with this
result in a merger year.
Peapack-Gladstone Financial Corporation listed its shares on
the American Stock Exchange under the symbol of "PGC" on November
1, 2000. There were three main objectives behind this decision.
First, the Board wanted to provide a more orderly market for our
stock than we had seen in the recent year. Second, we wanted to
close the large gap between the bid and
2
asked prices seen during that period. Third, we wanted to raise
the visibility of our Company and perhaps attract some new
investors. To date, we are very pleased with the decision and the
"old fashioned" auction market provided by Amex. This may be the
perfect market for the stock of a growing Community Bank.
Also on November 1, 2000, the Board paid a 5% stock dividend
and increased the quarterly cash dividend to 14(cent) per share.
With the stock dividend, this effectively raised the cash
dividend rate by 13%. As always, we will continue to look for
ways to increase shareholder value.
All financial results are discussed in greater detail later
in the report but there are two other areas that are of special
importance to our shareholders. The first is that there has been
a great deal of concern about the slowing of the economy. There
is no question that it has at least leveled off. It should be
remembered, however, that it has leveled at a very high point of
productivity. We believe that a combination of interest rate
drops and tax cuts could revive the economy as it searches for a
new base on which to build. While many have been affected by the
weak technology stock market, most understand that technology is
here to stay and that companies with good ideas and a way to grow
earnings will be fine in the long term. Our shareholders should
note in our report that loan delinquencies are at an all time low
as of December 31, 2000.
The other very important positive for our shareholders and
customers is that PGB Trust and Investments, our Trust business,
is thriving. They crossed the $1,000,000,000 threshold in market
value of assets for the first time in 2000.
This Department has reached a size where it is a significant
contributor to income, last year booking gross fees of over
$3,600,000. We have always believed that if we do an outstanding
job for our customers that we will be rewarded with more business
and the resulting income. There is no question that our greatest
sales tool is word of mouth and this is particularly true in the
Trust and Investment area.
All banks are looking to grow fee income. We are fortunate
to be in the right business at the right time and place. The
largest transfer of wealth from one generation to next will occur
over the next ten to fifteen years. We are in position and have
the expertise to help our customers reach their financial goals
now, and to plan for the transfer of their assets from generation
to generation. You have a unique resource within our Community
Bank environment.
In closing we want to thank our Board for their efforts and
our Officers and Employees for taking the extra step to ensure a
satisfied customer.
/s/ T. LEONARD HILL /s/ FRANK A. KISSEL
-------------------------------- ---------------------------
T. Leonard Hill Frank A. Kissel
CHAIRMAN PRESIDENT & CEO
3
MANAGEMENT DISCUSSION AND ANALYSIS
OVERVIEW: The following discussion and analysis is intended to provide
information about the financial condition and results of operations of
Peapack-Gladstone Financial Corporation and its subsidiaries on a consolidated
basis and should be read in conjunction with the consolidated Financial
Statements and the related notes and supplemental financial information
appearing elsewhere in this report.
Peapack-Gladstone Financial Corporation (the "Corporation") formed in 1997,
is the parent holding company for the Peapack-Gladstone Bank, formed in 1921, a
commercial bank operating fourteen branches in Somerset, Hunterdon, and Morris
counties. An additional branch in Hillsborough, Hunterdon County opened during
the first quarter of 2001.
On January 7, 2000, the Corporation completed its merger with Chatham
Savings, FSB. Under terms of the merger agreement, each outstanding share of
Chatham common stock was exchanged for 2.293 shares of Corporation common stock.
As a result, a total of 321,017 shares of Corporation common stock was
exchanged. (All share and per share amounts have been restated to reflect the 5%
stock dividend issued in November 2000). This merger added branches in Chatham
Borough and Chatham Township. Merger-related charges incurred amounted to $500
thousand and were expensed in the first quarter of 2000. On an after tax basis,
these charges totaled $423 thousand or $0.14 per diluted share. These charges
include only identified direct and incremental costs associated with this
acquisition. Items included in these charges include the following: personnel
expenses which include severance payments and benefits for terminated employees,
principally, senior executives of Chatham; professional fees which include
investment banking, accounting and legal fees; and other expenses which include
data processing and the write-off of supplies and other assets not considered
useful in the operation of the combined entity.
On November 1, 2000 the Corporation listed its common stock on the American
Stock Exchange under the symbol "PGC". This action brings greater visibility to
the Corporation's common stock along with greater liquidity that the AMEX's
auction market orientation brings through the Corporation's floor specialist
firm, AGS Specialist Partners.
During 2000, the cash dividend rate was increased to $0.14 per share. This
new rate, coupled with the 5% stock dividend paid on November 1, 2000,
effectively raised the cash dividend rate by 13% over the previous rate of $0.13
per share.
RESULTS OF OPERATIONS 2000 COMPARED TO 1999: For the year ended December 31,
2000 the Corporation's net income increased 7% to a record $7.71 million
compared to $7.19 million earned in 1999. Diluted earnings per share increased
7% to $2.49 per share from $2.32 per share earned in 1999. Earnings per diluted
share before merger-related charges of $0.14, net of tax, were $2.63 as compared
to $2.32 in 1999, an increase of 13%. All share and per share amounts have been
restated to reflect the 5% stock dividends issued in November 2000 and 1999.
These results before merger-related charges produced a return on average
assets of 1.55% as compared to 1.48% in 1999 and a return on average
stockholders' equity of 16.14% as compared to 15.67% in 1999.
The increase in net income for 2000 was primarily due to growth in net
interest income and Trust fees offset in part by higher other expenses. We
increased spending in support of attracting and maintaining professional and
clerical staff and technological initiatives to drive revenue growth and
increase efficiency.
4
EARNING ASSETS: Total earning assets, consisting primarily of loans, securities,
and federal funds sold, increased approximately 15% from $466.2 million at
December 31, 1999 to $535.6 million at December 31, 2000.
[REPRESENTATION OF GRAPHIC]
RETURN OF AVERAGE EQUITY
IN PERCENT
1996 11.32
1997 13.11
1998 14.21
1999 15.67
2000 15.30
RETURN OF AVERAGE ASSETS
IN PERCENT
1996 00.99
1997 01.16
1998 01.33
1999 01.48
2000 0.147
Loans: The loan portfolio represents the Corporation's largest earning
asset balance and is a significant source of interest and fee income.
Total loans increased $56.4 million or 20% from 1999 levels. This growth
was focused primarily in the real estate sector, as 1-4 family residential loans
secured by real estate (first liens) increased $41.6 million. The increase
related primarily to increased lending within our geographic market areas to
customers seeking residential first mortgages and home equity loans on their
primary residence. Total loans at year-end were $344.3 million and $287.9
million in 2000 and 1999, respectively.
5
THE FOLLOWING TABLE PRESENTS AN ANALYSIS OF OUTSTANDING LOANS AS OF DECEMBER 31,
(IN THOUSANDS) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------
REAL ESTATE--MORTGAGE
1-4 FAMILY RESIDENTIAL:
FIRST LIENS $210,547 $168,979 $153,372 $110,903 $ 88,165
- ------------------------------------------------------------------------------------------
JUNIOR LIENS 25,017 21,263 12,840 14,107 14,836
- ------------------------------------------------------------------------------------------
HOME EQUITY 15,633 14,488 12,278 12,494 8,636
- ------------------------------------------------------------------------------------------
REAL ESTATE--COMMERCIAl 62,161 55,747 40,152 31,090 28,335
- ------------------------------------------------------------------------------------------
REAL ESTATE--CONSTRUCTION 2,297 1,153 1,946 4,213 4,703
- ------------------------------------------------------------------------------------------
COMMERCIAL LOANS 13,019 12,541 11,594 11,635 12,282
- ------------------------------------------------------------------------------------------
CONSUMER LOANS 14,084 12,413 12,959 13,741 11,493
- ------------------------------------------------------------------------------------------
OTHER LOANS 1,541 1,349 663 896 2,065
- ------------------------------------------------------------------------------------------
TOTAL LOANS $344,299 $287,933 $245,804 $199,079 $170,515
==========================================================================================
THE FOLLOWING TABLE SETS FORTH THE MATURITY DISTRIBUTION OF THE CORPORATION'S
LOAN PORTFOLIO AS OF DECEMBER 31, 2000. THE TABLE EXCLUDES REAL ESTATE LOANS
(OTHER THAN CONSTRUCTION LOANS) AND INSTALLMENT LOANS:
DUE AFTER
DUE IN ONE YEAR DUE AFTER
ONE YEAR THROUGH FIVE
(IN THOUSANDS) OR LESS FIVE YEARS YEARS TOTAL
- ----------------------------------------------------------------------------------------------------
COMMERCIAL LOANS $6,144 $5,636 $1,239 $13,019
- ----------------------------------------------------------------------------------------------------
CONSTRUCTION LOANS 1,247 741 309 2,297
- ----------------------------------------------------------------------------------------------------
TOTAL $7,391 $6,377 $1,548 $15,316
====================================================================================================
THE FOLLOWING TABLE SETS FORTH, AS OF DECEMBER 31, 2000, THE SENSITIVITY OF THE
LOAN AMOUNTS DUE AFTER ONE YEAR TO CHANGES IN INTEREST RATES. THE TABLE EXCLUDES
REAL ESTATE LOANS (OTHER THAN CONSTRUCTION LOANS) AND INSTALLMENT LOANS:
DUE AFTER
ONE YEAR DUE AFTER
THROUGH FIVE
(IN THOUSANDS) FIVE YEARS YEARS
- ------------------------------------------------------------------
FIXED INTEREST RATES $5,465 $1,548
- ------------------------------------------------------------------
VARIABLE INTEREST RATES 912 --
- ------------------------------------------------------------------
TOTAL $6,377 $1,548
==================================================================
INVESTMENT SECURITIES: Investment securities are those securities that the
Corporation has both the ability and intent to hold to maturity. These
securities are carried at amortized cost. The portfolio consists primarily of U.
S. government agencies, municipal obligations, mortgage-backed securities, and
other securities. The Corporation's investment securities amounted to $69.6
million at December 31, 2000, compared with $61.7 million at December 31, 1999.
6
THE FOLLOWING TABLE PRESENTS THE CONTRACTUAL MATURITIES AND YIELDS OF INVESTMENT
SECURITIES AT AMORTIZED COST, AS OF DECEMBER 31, 2000:
AFTER 1 AFTER 5
WITHIN BUT WITHIN BUT WITHIN AFTER
(IN THOUSANDS) 1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL
- --------------------------------------------------------------------------------------------
U.S. TREASURY $1,001 $ 2,997 $ -- $ -- $ 3,998
6.04% 6.39% -- -- 6.30%
- --------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES -- 20,977 11,773 -- 32,750
-- 6.41% 7.15% -- 6.68%
- --------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES -- -- 75 11,259 11,334
-- -- 5.50% 7.51% 7.50%
- --------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS 6,042 7,994 1,038 446 15,520
6.27% 6.59% 6.11% 8.92% 6.50%
- --------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES -- 5,973 -- -- 5,973
-- 6.57% -- -- 6.57%
- --------------------------------------------------------------------------------------------
TOTAL $7,043 $37,941 $12,886 $11,705 $69,575
6.24% 6.47% 7.05% 7.56% 6.74%
============================================================================================
SECURITIES AVAILABLE FOR SALE: Securities available for sale are used as a part
of the Corporation's interest rate risk management strategy, and they may be
sold in response to changes in interest rates, liquidity needs, and other
factors. These securities are carried at estimated fair value, and unrealized
changes in fair value are recognized as a separate component of stockholders'
equity, net of income taxes. Realized gains and losses are recognized in income
at the time the securities are sold.
At December 31, 2000, the Corporation had securities available for sale
with a market value of $85.3 million, compared with $101.3 million at December
31, 1999. A $476 thousand unrealized loss and $2.0 million unrealized loss (net
of income tax) was included in stockholders' equity at December 31, 2000 and
December 31, 1999, respectively.
THE FOLLOWING TABLE PRESENTS THE CONTRACTUAL MATURITIES OF DEBT SECURITIES
AVAILABLE FOR SALE, STATED AT MARKET VALUE, AS OF DECEMBER 31, 2000:
AFTER 1 AFTER 5
WITHIN BUT WITHIN BUT WITHIN AFTER
(IN THOUSANDS) 1 YEAR 5 YEARS 10 YEARS 10 YEARS TOTAL
- -------------------------------------------------------------------------------------------
U.S. TREASURY $ 5,017 $ 6,076 $ -- $ -- $11,093
6.51% 6.46% -- -- 6.48%
- --------------------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCIES 1,400 33,030 24,885 -- 59,315
6.44% 5.98% 6.05% -- 6.02%
- --------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES -- -- -- 1,867 1,867
-- -- -- 6.96% 6.96%
- --------------------------------------------------------------------------------------------
STATE AND POLITICAL SUBDIVISIONS -- -- 238 -- 238
-- -- 6.20% -- 6.20%
- --------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 3,375 4,822 -- 4,621 12,818
5.08% 6.00% -- 8.05% 6.48%
- --------------------------------------------------------------------------------------------
TOTAL $ 9,792 $43,928 $25,123 $6,488 $85,331
6.00% 6.05% 6.05% 7.73% 6.17%
============================================================================================
Federal funds sold are an integral part of the Corporation's investment and
liquidity strategies. The average balance of federal funds sold during 2000 and
1999 was $17.8 million and $25.2 million, respectively.
7
DEPOSITS: Total deposits increased $66.2 million or 15% to $510.3 million at
December 31, 2000, compared to $444.1 million at December 31, 1999. Our strategy
to expand market share and fund earning asset growth with core deposits was an
important factor for strong growth in net interest income.
A combination of marketing and sales initiatives contributed to a $16.8
million increase in noninterest-bearing demand deposits and a $10.1 million
increase in interest-bearing checking accounts. During 2000, we introduced a
tiered money market account product which offers highly competitive interest
rates. This new product was well received by our customers and contributed to
the $34.4 million increase in money market accounts.
The Corporation does not participate in the brokered deposit market, and
certificates of deposit over $100,000 are generally purchased by local municipal
governments or individual depositors for periods of one year or less. These
factors translate into a stable customer oriented cost-effective funding source.
THE FOLLOWING TABLE SHOWS REMAINING MATURITY FOR CERTIFICATES OF DEPOSIT OVER
$100,000 AS OF DECEMBER 31, 2000 (IN THOUSANDS):
THREE MONTHS OR LESS $21,170
- -----------------------------------------------------------------------------
OVER THREE MONTHS THROUGH TWELVE MONTHS 14,818
- -----------------------------------------------------------------------------
OVER TWELVE MONTHS 4,076
- -----------------------------------------------------------------------------
TOTAL $40,064
=============================================================================
THE FOLLOWING TABLE SETS FORTH INFORMATION CONCERNING THE COMPOSITION OF THE
CORPORATION'S AVERAGE DEPOSIT BASE AND AVERAGE INTEREST RATES PAID FOR THE
FOLLOWING YEARS:
2000 1999 1998
- -------------------------------------------------------------------------------------------
(IN THOUSANDS) $ % $ % $ %
- --------------------------------------------------------------------------------------------
NONINTEREST-BEARING
DEMAND DEPOSITS $ 95,621 -- $ 87,550 -- $ 76,446 --
- --------------------------------------------------------------------------------------------
CHECKING DEPOSITS 97,025 1.08 93,368 1.13 86,129 1.13
- --------------------------------------------------------------------------------------------
SAVINGS DEPOSITS 80,837 2.06 83,122 2.05 81,277 2.50
- --------------------------------------------------------------------------------------------
MONEY MARKET DEPOSITS 48,698 3.55 34,670 2.38 28,525 2.99
- --------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 147,076 5.49 140,743 4.80 131,268 5.32
- --------------------------------------------------------------------------------------------
TOTAL DEPOSITS $469,257 $439,453 $403,645
============================================================================================
8
NET INTEREST INCOME: Net interest income, the Corporation's largest
component of operating income, is the difference between interest and fees
earned on loans and other interest-earning assets and interest paid on deposits.
The dynamics of the changes in interest rates, as well as the mix and volume of
interest-earning assets and interest-bearing liabilities, combine to affect net
interest income.
Net interest income (on a tax-equivalent basis) totaled $23.4 million for
2000, an increase of 9% or $1.9 million over the $21.5 million recorded in 1999.
The increase was primarily due to a $30.0 million increase in average earning
assets and higher rates earned on interest-earning assets, which increased to
7.29% from 6.88% earned in 1999. Offsetting higher interest income in part was
higher interest expense which increased $2.2 million or 21%. This increase was
primarily due to a $21.7 million increase in interest-bearing deposits and
higher rates paid on interest-bearing deposits, which increased to 3.35% from
2.94% in 1999. A major factor in the growth in net interest income was higher
average demand deposits which increased $8.1 million or 9% on average during
2000 as compared to 1999. The net interest margin in 2000 was 4.76%, an increase
of 12 basis points from 4.64% in 1999.
[REPRESENTATION OF GRAPHIC]
NET INTEREST INCOME
IN MILLIONS
1996 $15.3
1997 $17.5
1998 $19.1
1999 $21.3
2000 $23.2
Interest income on interest-earning assets (on a tax-equivalent basis)
increased $4.1 million or 13% to $36.0 million. This increase was primarily due
to higher average loans, up $57.8 million or 22% over 1999 levels and higher
rates earned on average loans, up 8 basis points to 7.79% from 7.71% in 1999,
offset in part by lower average investments and federal funds sold, down $20.5
million and $7.4 million, respectively.
The increase in interest expense was primarily due to higher average
balances and higher rates paid on money market accounts and certificates of
deposits. Money market account balances increased on average $14.0 million and
rates paid increased 117 basis points, which was primarily due to the
introduction of a tiered money market account product that offers highly
competitive interest rates. Average certificates of deposits increased $6.3
million and rates paid increased 69 basis points over 1999 levels due to overall
increased market interest rates.
9
THE FOLLOWING TABLE COMPARES THE AVERAGE BALANCE SHEET, NET INTEREST SPREADS AND
NET INTEREST MARGINS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(FULLY TAX-EQUIVALENT - FTE):
YEAR ENDED DECEMBER 31, 2000 YEAR ENDED DECEMBER 31, 1999 YEAR ENDED DECEMBER 31, 1998
---------------------------- ---------------------------- -----------------------------
INCOME/ INCOME/ INCOME/
AVERAGE EXPENSE YIELD AVERAGE EXPENSE YIELD AVERAGE EXPENSE YIELD
(IN THOUSANDS, EXCEPT YIELD INFORMATION) BALANCE (FTE) (FTE) BALANCE (FTE) (FTE) BALANCE (FTE) (FTE)
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
INTEREST-EARNING ASSETS:
INVESTMENTS:
TAXABLE $143,600 $ 9,097 6.33% $164,420 $ 9,456 5.75% $172,496 $ 10,577 6.13%
- ------------------------------------------------------------------------------------------------------------------------------------
TAX-EXEMPT 12,585 850 6.75% 12,260 785 6.35% 9,375 595 6.35%
- ------------------------------------------------------------------------------------------------------------------------------------
LOANS 319,033 24,856 7.79% 261,191 20,129 7.71% 227,503 18,006 7.91%
- ------------------------------------------------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 17,810 1,153 6.47% 25,182 1,477 5.87% 16,972 892 5.26%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-EARNING ASSETS 493,028 35,956 7.29% 463,053 31,847 6.88% 426,346 30,070 7.05%
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-EARNING ASSETS:
CASH AND DUE FROM BANKS 15,222 12,570 12,211
- ------------------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES (3,135) (2,653) (2,240)
- ------------------------------------------------------------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 11,267 9,729 9,631
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS 6,786 4,070 6,523
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-EARNING ASSETS 30,140 23,716 26,125
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $523,168 $486,769 $452,471
====================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
INTEREST-BEARING DEPOSITS:
CHECKING $ 97,025 $ 1,048 1.08% $ 93,368 $ 1,058 1.13% $86,129 $ 973 1.13%
- ------------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET 48,698 1,729 3.55% 34,670 1,095 3.16% 28,525 853 2.99%
- ------------------------------------------------------------------------------------------------------------------------------------
SAVINGS 80,837 1,662 2.06% 83,122 1,977 2.38% 81,277 2,035 2.50%
- ------------------------------------------------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 147,076 8,070 5.49% 140,743 6,211 4.41% 131,268 6,982 5.32%
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST-BEARING DEPOSITS 373,636 12,509 3.35% 351,903 10,341 2.94% 327,199 10,843 3.31%
- ------------------------------------------------------------------------------------------------------------------------------------
NONINTEREST-BEARING LIABILITIES:
DEMAND DEPOSITS 95,621 87,550 76,446
- ------------------------------------------------------------------------------------------------------------------------------------
ACCRUED EXPENSES AND OTHER LIABILITIES 3,531 4,181 6,357
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NONINTEREST-BEARING LIABILITIES 99,152 91,731 82,803
- ------------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 50,380 43,135 42,469
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $523,168 $486,769 $452,471
====================================================================================================================================
NET INTEREST INCOME $23,447 $21,506 $ 19,227
====================================================================================================================================
NET INTEREST SPREAD 3.93% 3.94% 3.74%
- ------------------------------------------------------------------------------------------------------------------------------------
NET INTEREST MARGIN 4.76% 4.64% 4.51%
- ------------------------------------------------------------------------------------------------------------------------------------
1. Average loan balances include non-accrual and restructured loans.
2. The tax-equivalent adjustment was computed based on a federal tax rate of
34%.
3. Investments consist of investment securities and securities available for
sale.
10 11
RATE/VOLUME ANALYSIS (fully tax-equivalent basis):
THE EFFECT OF VOLUME AND RATE CHANGES ON NET INTEREST INCOME FOR THE YEARS ENDED
DECEMBER 31, 2000 AND 1999 ARE SHOWN BELOW:
(IN THOUSANDS) YEAR ENDED 2000 COMPARED WITH 1999 YEAR ENDED 1999 COMPARED WITH 1998
- ------------------------------------------------------------------------------------------
NET NET
DIFFERENCE DUE TO CHANGE IN DIFFERENCE DUE TO CHANGE IN
CHANGE IN: INCOME/ CHANGE IN: INCOME/
VOLUME RATE EXPENSE VOLUME RATE EXPENSE
- ------------------------------------------------------------------------------------------
ASSETS
INVESTMENTS $(1,251) $ 957 $ (294) $ (313) $ (618) $ (931)
- ------------------------------------------------------------------------------------------
LOANS 4,504 223 4,727 2,607 (484) 2,123
- ------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD (465) 141 (324) 472 113 585
- ------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME $ 2,788 $1,321 $4,109 $2,766 $ (989) $ 1,777
==========================================================================================
LIABILITIES
CHECKING $ 41 $ (51) $ (10) $ 82 $ 3 $ 85
- ------------------------------------------------------------------------------------------
MONEY MARKET 485 149 634 192 50 242
- ------------------------------------------------------------------------------------------
SAVINGS (53) (262) (315) 45 (103) (58)
- ------------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT 290 1,569 1,859 478 (1,249) (771)
- ------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE $ 763 $1,405 $2,168 $ 797 $(1,299) $ (502)
==========================================================================================
PROVISION FOR LOAN LOSSES: The provision for loan losses represents management's
determination of the amount necessary to bring the allowance for loan losses to
a level that management considers adequate to reflect the risk of losses
inherent in the Corporation's loan portfolio. In its evaluation of the adequacy
of the allowance for loan losses, management considers past loan loss
experience, changes in the composition of non-performing loans, the condition of
borrowers facing financial pressure, the relationship of the current level of
the allowance to the credit portfolio and to non-performing loans and existing
economic conditions. The process of determining the adequacy of the allowance is
necessarily judgmental and subject to changes in external conditions.
The total provision for loan losses for 2000 was $500 thousand as compared
to $555 thousand in 1999 and $521 thousand in 1998. Net charge-offs for 2000,
1999 and 1998 were $27 thousand, $21 thousand and $115 thousand, respectively.
There was no other real estate owned at December 31, 2000 and 1999.
Non-performing assets consist of non-performing loans and other real estate
owned. Non-performing loans are composed of loans on nonaccrual status or loans
which are contractually past due 90 days or more as to interest and principal
payments but have not been classified as nonaccrual. Non-performing assets were
$400 thousand in 2000, $591 thousand in 1999 and $807 thousand in 1998. The
allowance for loan losses was $3.4 million at December 31, 2000 as compared to
$3.0 million at December 31, 1999. The allowance for loan losses currently
provides 859% coverage of all non-performing assets. At December 31, 2000, the
allowance for loan losses as a percentage of total loans outstanding was 1.00%
compared to 1.03% at December 31, 1999 and 0.99% at December 31, 1998.
12
THE FOLLOWING TABLE PRESENTS THE LOAN LOSS EXPERIENCE DURING THE PERIODS ENDED
DECEMBER 31:
(IN THOUSANDS) 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES AT
BEGINNING OF YEAR $2,962 $2,428 $2,022 $1,721 $1,383
- --------------------------------------------------------------------------------------------
LOANS CHARGED-OFF DURING THE PERIOD:
REAL ESTATE 27 0 0 151 287
- --------------------------------------------------------------------------------------------
CONSUMER 119 70 152 97 49
- --------------------------------------------------------------------------------------------
COMMERCIAL AND OTHER 28 52 35 35 25
- --------------------------------------------------------------------------------------------
TOTAL LOANS CHARGED-OFF 174 122 187 283 361
- --------------------------------------------------------------------------------------------
RECOVERIES DURING THE PERIOD:
REAL ESTATE 75 22 24 105 19
- --------------------------------------------------------------------------------------------
CONSUMER 53 63 12 25 8
- --------------------------------------------------------------------------------------------
COMMERCIAL AND OTHER 19 16 36 9 22
- --------------------------------------------------------------------------------------------
TOTAL RECOVERIES 147 101 72 139 49
- --------------------------------------------------------------------------------------------
NET CHARGE-OFFS 27 21 115 144 312
- --------------------------------------------------------------------------------------------
TRANSFER TO ALLOWANCE FOR OREO 0 0 0 0 (52)
- --------------------------------------------------------------------------------------------
PROVISION CHARGED TO EXPENSE 500 555 521 445 702
- --------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES AT
END OF YEAR $3,435 $2,962 $2,428 $2,022 $1,721
=============================================================================================
THE FOLLOWING TABLE SHOWS THE ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES AS OF
DECEMBER 31:
2000 1999 1998 1997 1996
- ----------------------------------------------------------------------------------------------
(IN THOUSANDS) $ % $ % $ % $ % $ %
- ----------------------------------------------------------------------------------------------
REAL ESTATE $1,889 55 $1,629 55 $1,336 55 $1,112 55 $ 947 55
- ----------------------------------------------------------------------------------------------
CONSUMER 172 5 148 5 121 5 101 5 86 5
- ----------------------------------------------------------------------------------------------
COMMERCIAL AND OTHER 1,374 40 1,185 40 971 40 809 40 688 40
- ----------------------------------------------------------------------------------------------
TOTAL $3,435 100 $2,962 100 $2,428 100 $2,022 100 $1,721 100
==============================================================================================
13
NON-PERFORMING ASSETS:
THE FOLLOWING TABLE PRESENTS FOR THE YEARS INDICATED THE COMPONENTS OF
NON-PERFORMING ASSETS:
YEARS ENDED DECEMBER 31,
- ------------------------------------------------------------------------------------------
(IN THOUSANDS) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------
LOANS PAST DUE 90 DAYS OR MORE
AND STILL ACCRUING INTEREST $ 75 $ 205 $ 1 $ 104 $ 122
- ------------------------------------------------------------------------------------------
NON-ACCRUAL LOANS 325 386 806 742 1,311
- ------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS 400 591 807 846 1,433
==========================================================================================
OTHER REAL ESTATE OWNED -- -- -- 340 479
- ------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS 400 591 807 1,186 1,912
==========================================================================================
LOAN CHARGE-OFFS 174 122 187 283 361
- ------------------------------------------------------------------------------------------
LOAN RECOVERIES 147 101 72 139 49
- ------------------------------------------------------------------------------------------
NET LOAN CHARGE-OFFS 27 21 115 144 312
==========================================================================================
ALLOWANCE FOR LOAN LOSSES $3,435 $2,962 $2,428 $2,022 $1,721
==========================================================================================
In addition, the Bank had restructured loans of $325 thousand and $255
thousand at December 31, 2000 and 1999, respectively.
RATIOS:
TOTAL NON-PERFORMING LOANS/
TOTAL LOANS 0.12% 0.21% 0.33% 0.42% 0.84%
- ------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING LOANS/
TOTAL ASSETS 0.07% 0.12% 0.17% 0.19% 0.36%
- ------------------------------------------------------------------------------------------
TOTAL NON-PERFORMING ASSETS/
TOTAL ASSETS 0.07% 0.12% 0.17% 0.27% 0.48%
- ------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES/
TOTAL LOANS 1.00% 1.03% 0.99% 1.02% 1.01%
- ------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES/
TOTAL NON-PERFORMING LOANS 858.75% 501.18% 300.87% 239.01% 120.10%
- ------------------------------------------------------------------------------------------
Interest income of $22,000, $39,000 and $68,000 would have been recognized
during 2000, 1999, and 1998, respectively, if non-accrual loans had been current
in accordance with their original terms.
OTHER INCOME: Other income before losses on securities was $5.8 million in 2000,
representing a 10% increase from 1999 levels. This increase was primarily due to
higher trust fees and gain on sale of a loan servicing portfolio, partially
offset by reduced other fee income. Trust fees for 2000 were 20% higher than
1999 and 61% higher than 1998. The sharp rise in Trust fees can be attributed to
the increase in book value of assets under management, which increased 8.9
percent in 2000 as compared to 1999 levels. The gain on sale of servicing and
the reduction in other fee income was a result of discontinuing Chatham Savings,
FSB mortgage banking activities, which were not significant to Chatham's assets
and which were incompatible with existing lines of business. For the years ended
December 31, 2000, securities losses were $200 thousand as compared to gains of
$16 thousand and $178 thousand for 1999 and 1998, respectively. The higher rate
earned on the reinvestment of the proceeds of the securities sold at a loss in
2000 is expected to increase interest income in future years.
14
THE FOLLOWING TABLE PRESENTS THE MAJOR COMPONENTS OF
OTHER INCOME:
(IN THOUSANDS) 2000 1999 1998
- --------------------------------------------------------------------------------------------
SERVICE CHARGES ON DEPOSIT ACCOUNTS $1,310 $1,265 $1,514
- --------------------------------------------------------------------------------------------
TRUST DEPARTMENT FEES 3,604 3,002 2,241
- --------------------------------------------------------------------------------------------
SAFE DEPOSIT RENTAL FEES 168 176 173
- --------------------------------------------------------------------------------------------
OTHER FEE INCOME 299 660 481
- --------------------------------------------------------------------------------------------
GAIN ON SALE OF LOAN SERVICING 211 -- --
- --------------------------------------------------------------------------------------------
OTHER NON-INTEREST INCOME 163 144 214
- --------------------------------------------------------------------------------------------
OTHER INCOME BEFORE GAIN/(LOSS) ON SECURITIES 5,755 5,247 4,623
- --------------------------------------------------------------------------------------------
SECURITIES (LOSSES)/GAINS (200) 16 178
- --------------------------------------------------------------------------------------------
TOTAL OTHER INCOME $5,555 $5,263 $4,801
============================================================================================
OTHER EXPENSES: Other expense totaled $16.6 million in 2000, an increase of $1.4
million or 9% compared to $15.3 million in 1999. Excluding merger-related
charges of $500 thousand, the increase was $852 thousand, or 6%. The increase in
other expense was primarily the result of increases in salaries and benefits and
advertising, offset in part by lower equipment and data processing costs related
to the consolidation of the Chatham Savings, FSB operations.
Salaries and benefits expense, the largest component of other expense,
increased 14% to $9.0 million from $7.9 million in 1999. This increase was
primarily related to higher staff levels and costs associated with attracting
and retaining a well-trained professional staff and the related fringe benefits.
The Corporation strives to operate in an efficient manner and control costs
as a means of producing increased earnings for its shareholders.
THE FOLLOWING TABLE PRESENTS THE MAJOR COMPONENTS OF OTHER EXPENSE:
(IN THOUSANDS) 2000 1999 1998
- --------------------------------------------------------------------------------
SALARIES AND BENEFITS $ 9,041 $ 7,942 $ 7,536
- --------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 3,035 2,811 2,557
- --------------------------------------------------------------------------------
MERGER-RELATED CHARGES 500 -- --
- --------------------------------------------------------------------------------
TRUST DEPARTMENT EXPENSE 379 330 336
- --------------------------------------------------------------------------------
ADVERTISING 499 329 288
- --------------------------------------------------------------------------------
STATIONERY AND SUPPLIES 285 277 301
- --------------------------------------------------------------------------------
POSTAGE 299 234 280
- --------------------------------------------------------------------------------
TELEPHONE 298 294 268
- --------------------------------------------------------------------------------
PROFESSIONAL FEES 248 349 283
- --------------------------------------------------------------------------------
FDIC INSURANCE ASSESSMENT 93 84 81
- --------------------------------------------------------------------------------
OTHER EXPENSE 1,958 2,633 1,872
- --------------------------------------------------------------------------------
TOTAL OTHER EXPENSE $16,635 $15,283 $13,802
================================================================================
INCOME TAXES: Income tax expense for the year ended December 31, 2000 was $3.9
million as compared to $3.6 million in 1999. The effective tax rate for the year
ended December 31, 2000 was 33.84% compared to 33.26% for the year ended
December 31, 1999. The increased income tax expense in 2000 reflects higher
levels of taxable income as the effective tax rate remained consistent.
15
RESULTS OF OPERATIONS 1999 COMPARED TO 1998: For the year ended December 31,
1999, net income increased 19% to $7.2 million compared to $6.0 million in 1998.
Diluted earnings per share increased 20% to $2.32 in 1999 from $1.94 in 1998.
The increase in net income for 1999 was due primarily to growth in net interest
income and strong growth in Trust fees offset in part by increased other
expenses. Return on average stockholders' equity increased to 15.67% in 1999
compared to 14.21% in 1998 and the return on average assets increased to 1.48%
in 1999 from 1.33% in 1998. All share and per share amounts have been restated
to reflect the 5% stock dividend paid in November 1999.
Net interest income on a tax equivalent basis increased $2.3 million, or
12% to $21.5 million in 1999 as compared to $19.2 million in 1998. The increase
in 1999 was due primarily to growth of average interest-earning assets of $36.7
million, offset in part by growth of average interest-bearing liabilities, which
increased $24.7 million on average over 1998 levels. Average demand deposits
increased $11.1 million or 14.5% over average demand deposits in 1998. The net
interest margin increased to 4.64% for 1999 compared to 4.51% for 1998.
Other income in 1999 amounted to $5.3 million as compared to $4.8 million
in 1998. Trust fees grew 34% to $3.0 million in 1999 as compared to $2.2 million
in 1998, as the book value of assets under management grew 19% to $651.5 million
from $549.3 million in 1998.
Total other expenses increased 11% to $15.3 million in 1999 as most expense
categories reflected year-over-year growth. Higher spending in support of
revenue-generating staff positions, expanded technology spending, branch
expansion and costs related to business volumes accounted for the majority of
the increase in other expenses.
CAPITAL RESOURCES: The solid capital base of the Corporation provides the
ability for future growth and financial strength. Maintaining a strong capital
position supports the Corporation's goal of providing shareholders an attractive
and stable long-term return on investment. At $55.2 million, total stockholders'
equity grew 16% or $7.6 million as compared with $47.6 million at December 31,
1999. At December 31, 2000, unrealized losses net of taxes were $476 thousand as
compared to unrealized losses net of taxes of $2.0 million at December 31, 1999.
The decline in unrealized losses, net of taxes, was primarily due to lower
interest rates during 2000 as compared to 1999. Federal regulations require
banks to meet target Tier 1 and total capital ratios of 4% and 8%, respectively.
At 19.1% and 20.4%, the Bank's Tier 1 and total capital ratios are well in
excess of regulatory minimums. The Bank's capital leverage ratio was 9.6% at
December 31, 2000.
LIQUIDITY: Liquidity refers to an institution's ability to meet short-term
requirements in the form of loan requests, deposit withdrawals and maturing
obligations. Principal sources of liquidity include cash, temporary investments
and securities available for sale.
Management feels the Corporation's liquidity position is sufficient to meet
any future needs. Cash and cash equivalents, including federal funds sold,
averaged over $33 million in 2000. In addition, the Corporation has over $85
million in securities designated as available for sale. These securities can be
sold in response to liquidity concerns. As of December 31, 2000, investment
securities and securities available for sale maturing within one year amounted
to $17 million and cash and cash equivalents totaled over $54 million.
Another source of liquidity is borrowing capacity. The Corporation has a
variety of sources of short-term liquidity available, including federal funds
purchased from correspondent banks, short and long term borrowings from the
Federal Home Loan Bank of New York, loan participation or sales of loans and
sales of securities available for sale. The Corporation also generates liquidity
from the regular principal payments made on its loan portfolio.
16
INTEREST RATE SENSITIVITY: Interest rate sensitivity is a measure of the
relationship between interest-earning assets and supporting funds which are
susceptible to changes in interest rates during comparable time periods.
Interest rate movements on deposits have made managing the Corporation's
interest rate sensitivity increasingly more important as a means of managing net
interest income. The Corporation's Asset/Liability Committee is responsible for
managing the exposure to changes in market interest rates. The "sensitivity" gap
quantifies the repricing mismatch between assets and supporting funds over
various time intervals. The cumulative gap position as a percentage of total
rate-sensitive assets provides one relative measure of the Corporation's
interest rate exposure.
The Corporation's ratio of rate-sensitive assets to rate-sensitive
liabilities was approximately .33 on December 31, 2000 based on contractual
maturities for the next twelve months subject to certain assumptions explained
in the following paragraph. Since this ratio is less than 1.00, the Corporation
has a "negative gap" position which may cause its assets to reprice more slowly
than its deposit liabilities. In a declining interest rate environment, interest
costs may be expected to fall faster than the interest received on earning
assets, thus increasing the net interest spread. If interest rates increase, a
negative gap means that the interest received on earning assets may be expected
to increase more slowly than the interest paid on the Corporation's
interest-bearing liabilities, therefore decreasing the net interest spread.
For purposes of calculating the gap position, interest-earning demand
deposits, money market deposits and savings deposits are included in the 0-3
month category. The Corporation recognizes that certain of these deposits are
more stable with an effective maturity greater than their repricing frequency.
Assets with daily floating rates are included in the 0-3 month category. Assets
and liabilities are included based on their maturities or period to first
repricing, subject to the foregoing assumptions.
THE TABLE BELOW PRESENTS THE MATURITY AND REPRICING RELATIONSHIPS BETWEEN
INTEREST-EARNING ASSETS AND INTEREST-BEARING DEPOSITS AS OF DECEMBER 31, 2000.
(IN THOUSANDS)
REPRICING OR 0 - 3 3 - 12 1 - 5 Over 5
MATURITY DATE MONTHS MONTHS YEARS YEARS TOTAL
- ------------------------------------------------------------------------------------------
ASSETS
SECURITIES $ 4,672 $ 12,163 $ 81,869 $56,202 $154,906
- ------------------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 36,376 -- -- -- 36,376
- ------------------------------------------------------------------------------------------
LOANS (1) 28,436 43,894 84,771 186,873 343,974
- ------------------------------------------------------------------------------------------
TOTAL INTEREST-SENSITIVE
ASSETS $ 69,484 $ 56,057 $166,640 $243,075 $535,256
==========================================================================================
DEPOSITS
CERTIFICATES OF DEPOSIT $ 40,550 $ 89,210 $ 25,224 $ 19 $155,003
- ------------------------------------------------------------------------------------------
SAVINGS 74,657 -- -- -- 74,657
- ------------------------------------------------------------------------------------------
MONEY MARKET ACCOUNTS 67,962 -- -- -- 67,962
- ------------------------------------------------------------------------------------------
CHECKING 108,780 -- -- -- 108,780
- ------------------------------------------------------------------------------------------
NONINTEREST-BEARING
DEMAND DEPOSITS -- -- -- 103,858 103,858
- ------------------------------------------------------------------------------------------
TOTAL INTEREST-SENSITIVE
DEPOSITS $291,949 $ 89,210 $ 25,224 $103,877 $510,260
==========================================================================================
ASSETS/DEPOSITS 0.24 0.63 6.61 2.34 1.05
- ------------------------------------------------------------------------------------------
ASSETS/DEPOSITS (CUMULATIVE) 0.24 0.33 0.72 1.05
- ------------------------------------------------------------------------------------------
(1) Loan balances do not include nonaccrual loans.
17
MARKET RISK SENSITIVE INSTRUMENTS: A derivative financial instrument includes
futures, forwards, interest rate swaps, option contracts and other financial
instruments with similar characteristics. The Corporation currently does not
enter into futures, forwards, swaps or options. However, the Corporation is
party to financial instruments with off-balance sheet risk in the normal course
of business to meet the financing needs of the customers of the Corporation.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated statements of condition. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates and may require collateral from the borrower if deemed
necessary by the Corporation. Standby letters of credit are conditional
commitments issued by the Corporation to guarantee the performance of a customer
to a third party up to a stipulated amount and with specified terms and
conditions.
Commitments to extend credit and standby letters of credit are not recorded
as an asset or liability by the Corporation until the instrument is exercised.
The Corporation's exposure to market risk is reviewed on a regular basis by
the Asset/Liability Committee. Interest rate risk is the potential of economic
losses due to future interest rate changes. These economic losses can be
reflected as a loss of future net interest income and/or a loss of current fair
market values. The objective is to measure the effect on net interest income and
to adjust the statement of condition to minimize the inherent risk while at the
same time maximize income. Management realizes certain risks are inherent and
that the goal is to identify and minimize the risks. Tools used by management
include the standard GAP report and interest rate shock simulation report. The
Corporation has no market risk sensitive instruments held for trading purposes.
Management believes the Corporation's market risk is reasonable at this time.
THE FOLLOWING TABLE PRESENTS THE SCHEDULED MATURITY OF MARKET RISK SENSITIVE
INSTRUMENTS AS OF DECEMBER 31, 2000:
AVERAGE WITHIN 1-5 OVER ESTIMATED
(IN THOUSANDS) INTEREST RATE 1 YEAR YEARS 5 YEARS TOTAL FAIR VALUE
- ------------------------------------------------------------------------------------------
ASSETS
SECURITIES 6.41% $ 16,835 $ 81,869 $ 56,202 $154,906 $155,561
- ------------------------------------------------------------------------------------------
LOANS (1) 7.79 72,330 84,771 186,873 343,974 342,571
- ------------------------------------------------------------------------------------------
TOTAL $ 89,165 $166,640 $243,075 $498,880 $498,132
==========================================================================================
LIABILITIES
SAVINGS, CHECKING
AND MONEY MARKET 1.96% $251,454 $ -- $ -- $251,454 $251,454
- ------------------------------------------------------------------------------------------
CD's 5.49 129,760 25,224 19 155,003 155,605
- ------------------------------------------------------------------------------------------
TOTAL $381,214 $ 25,224 $ 19 $406,457 $407,059
==========================================================================================
(1) Loan balances do not include nonaccrual loans.
18
EFFECTS OF INFLATION AND CHANGING PRICES: The financial statements and related
financial data presented herein have been prepared in terms of historical
dollars without considering changes in the relative purchasing power of money
over time due to inflation. Unlike most industrial companies, virtually all of
the assets and liabilities of a financial institution are monetary in nature. As
a result, interest rates have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates do
not necessarily move in the same magnitude as the prices of goods and services.
The Corporation believes residential real estate values have stabilized;
however, if real estate prices in the Corporation's trade area decrease, the
values of real estate collateralizing the Corporation's loans and real estate
held by the Corporation as other real estate owned could also be adversely
affected.
CHANGES IN ACCOUNTING PRINCIPLES: Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
No. 133"), was issued by the Financial Accounting Standards Board (FASB) in June
1998. SFAS No. 133 standardizes the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts. Under the
standard, entities are required to carry all derivative instruments in the
statement of financial condition at fair value. SFAS No. 137 extended the
adoption of SFAS No. 133 to periods beginning after June 15, 2000. In June of
2000, the FASB issued Statement of Financial Accounting Standards No. 138,
"Accounting for Certain Derivative Instruments and Certain Hedging Activities,
an Amendment of FASB Statement No. 133 and 137," which amends the accounting and
reporting standards of SFAS No. 133 for derivative instruments. Upon adoption,
the provisions of SFAS No. 133 must be applied prospectively. The adoption of
SFAS No. 133, SFAS No. 137 and SFAS No. 138 did not have a material impact on
the financial statements.
The FASB has issued Statement of Financial Accounting Standards No. 140,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities" (SFAS No. 140). Statement No. 140 replaces SFAS No. 125. SFAS
140 resolves certain implementation issues, but it carries forward most of SFAS
125's provisions without change. SFAS No. 140 is effective for transfers
occurring after March 31, 2001 and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000. The
Corporation anticipates that the adoption of SFAS No. 140 will not have a
material impact on the financial statements.
19
TRUST AND INVESTMENT DEPARTMENT: PGB Trust and Investments, a division of the
bank, continues to be an extremely important part of Peapack-Gladstone Financial
Corporation. Since its inception in 1972, it has served in the roles of executor
and trustee while providing investment management, custodial, tax, retirement,
and financial services to its growing client base.
[REPRESENTATION OF CHART]
TRUST
ASSETS
BOOK VALUE
IN MILLIONS
1996 $379
1997 $454
1998 $549
1999 $651
2000 $710
The book value of assets under management in PGB Trust and Investments
increased from $651.5 million at December 31, 1999 to $709.7 million at December
31, 2000, an increase of 9%. The corresponding market value at December 31, 2000
is in excess of $1 billion. Fee income generated by PGB Trust and Investments
was $3.6 million, $3.0 million and $2.2 million in 2000, 1999 and 1998,
respectively.
FORWARD-LOOKING STATEMENTS: In addition to historical information, this annual
report contains or may contain certain forward-looking statements and
information that are based on beliefs of, and information currently available to
management. When using this report and in oral statements by management the
words "anticipate," "believe," "estimate," "expect," "future," "intend," "plan,"
and similar expressions as they relate to the Corporation, identify
forward-looking statements.
Such statements reflect the current views of management with respect to
future events and are subject to certain risks, uncertainties and assumptions
relating to the Corporation's operations and results of operations, competitive
factors and pricing pressures, shifts in market demand, the performance and
needs of customers served by the Corporation and other risks and uncertainties.
These include uncertainties specifically identified in the text surrounding such
statements and uncertainties with respect to changes or developments in social,
economic, business, industry, market, legal and regulatory circumstances and
conditions and actions taken or omitted to be taken by third parties,
competitors, and legislative, regulatory, judicial and other governmental
authorities and officials.
Should one or more of these risks or uncertainties materialize, or should
the underlying assumptions prove incorrect, actual results may vary
significantly from those anticipated, believed, estimated, expected, intended or
planned. The Corporation assumes no obligation for updating any such
forward-looking statements at any time.
20
SELECTED CONSOLIDATED FINANCIAL DATA:
THE FOLLOWING IS SELECTED CONSOLIDATED FINANCIAL DATA FOR THE CORPORATION AND
ITS SUBSIDIARIES FOR THE YEARS INDICATED. THIS INFORMATION IS DERIVED FROM THE
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS AND SHOULD BE READ IN CONJUNCTION
WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES.
(IN THOUSANDS, EXCEPT PER SHARE DATA) YEARS ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------
SUMMARY EARNINGS:
INTEREST INCOME $35,740 $31,687 $29,949 $27,708 $25,846
- -----------------------------------------------------------------------------------------
INTEREST EXPENSE 12,509 10,341 10,843 10,193 10,515
- -----------------------------------------------------------------------------------------
NET INTEREST INCOME 23,231 21,346 19,106 17,515 15,331
- -----------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 500 555 521 445 702
- -----------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 22,731 20,791 18,585 17,070 14,629
- -----------------------------------------------------------------------------------------
OTHER INCOME, EXCLUSIVE OF SECURITIES
(LOSSES)/GAINS 5,755 5,247 4,623 3,604 3,827
- -----------------------------------------------------------------------------------------
OTHER EXPENSES 16,635 15,283 13,802 12,695 12,718
- -----------------------------------------------------------------------------------------
SECURITIES (LOSSES)/GAINS (200) 16 178 29 118
- -----------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 11,651 10,771 9,584 8,008 5,856
- -----------------------------------------------------------------------------------------
INCOME TAX EXPENSE 3,943 3,582 3,550 3,109 1,982
- -----------------------------------------------------------------------------------------
NET INCOME $ 7,708 $ 7,189 $ 6,034 $ 4,899 $ 3,874
=========================================================================================
PER SHARE DATA: (REFLECTS 5% STOCK DIVIDENDS PAID IN 2000, 1999 AND 1998, 2:1
STOCK SPLIT IN DECEMBER, 1997; AND 5% STOCK DIVIDEND PAID IN 1996.)
EARNINGS PER SHARE-BASIC $ 2.55 $ 2.39 $ 2.00 $ 1.62 $ 1.28
- ------------------------------------------------------------------------------------------------
EARNINGS PER SHARE-DILUTED $ 2.49 $ 2.32 $ 1.94 $ 1.60 $ 1.27
- ------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED $ 0.54 $ 0.50 $ 0.46 $ 0.41 $ 0.40
- ------------------------------------------------------------------------------------------------
BOOK VALUE END-OF-PERIOD $18.28 $15.80 $15.44 $13.72 $ 12.41
- ------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 3,018,371 3,012,283 3,012,089 3,015,657 3,021,318
- ------------------------------------------------------------------------------------------------
COMMON STOCK EQUIVALENTS 71,429 86,449 91,004 48,847 32,239
- ------------------------------------------------------------------------------------------------
[REPRESENTATION OF GRAPHIC]
DIVIDENDS PER SHARE
IN DOLLARS
1996 $0.54
1997 $0.50
1998 $0.46
1999 $0.41
2000 $0.40
[REPRESENTATION OF GRAPHIC]
BOOK VALUE PER SHARE
IN DOLLARS
1996 $18.28
1997 $15.80
1998 $15.44
1999 $13.72
2000 $12.41
21
2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------
BALANCE SHEET DATA: (AT PERIOD END)
TOTAL ASSETS $568,413 $497,535 $480,929 $442,760 $400,037
- ------------------------------------------------------------------------------------------
INVESTMENT SECURITIES 69,575 61,672 65,500 84,192 93,612
- ------------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE 85,331 101,324 103,604 97,863 84,596
- ------------------------------------------------------------------------------------------
LOANS 344,299 287,933 245,804 199,079 170,515
- ------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES 3,435 2,962 2,428 2,022 1,721
- ------------------------------------------------------------------------------------------
TOTAL DEPOSITS 510,260 444,088 430,750 400,793 361,551
- ------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 55,156 47,575 44,461 39,426 35,588
- ------------------------------------------------------------------------------------------
TRUST ASSETS (BOOK VALUE) 709,732 651,469 549,321 453,671 378,879
- ------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED 1,592 1,292 1,097 978 911
- ------------------------------------------------------------------------------------------
SELECTED PERFORMANCE RATIOS:
RETURN ON AVERAGE TOTAL ASSETS 1.47% 1.48% 1.33% 1.16% 0.99%
- ------------------------------------------------------------------------------------------
RETURN ON AVERAGE TOTAL
STOCKHOLDERS' EQUITY 15.30 15.67 14.21 13.11 11.32
- ------------------------------------------------------------------------------------------
DIVIDEND PAYOUT RATIO 20.65 17.97 16.21 18.59 21.24
- ------------------------------------------------------------------------------------------
AVERAGE TOTAL STOCKHOLDERS' EQUITY
TO AVERAGE ASSETS 9.63 8.86 9.39 8.82 8.79
- ------------------------------------------------------------------------------------------
NON-INTEREST EXPENSES TO AVERAGE ASSETS 3.18 3.14 3.05 3.00 3.26
- ------------------------------------------------------------------------------------------
NON-INTEREST INCOME TO AVERAGE ASSETS 1.06 1.08 1.06 0.85 0.98
- ------------------------------------------------------------------------------------------
ASSET QUALITY RATIOS: (AT PERIOD END)
NON-ACCRUAL LOANS TO TOTAL LOANS 0.09% 0.13% 0.33% 0.37% 0.77%
- ------------------------------------------------------------------------------------------
NON-PERFORMING ASSETS TO TOTAL ASSETS 0.07 0.12 0.17 0.27 0.48
- ------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES TO
NON-PERFORMING LOANS 858.75 501.18 300.87 239.01 120.10
- ------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES TO TOTAL LOANS 1.00 1.03 0.99 1.02 1.01
- ------------------------------------------------------------------------------------------
NET CHARGE-OFFS TO AVERAGE
LOANS PLUS OTHER REAL ESTATE OWNED 0.01 0.01 0.05 0.08 0.20
LIQUIDITY AND CAPITAL RATIOS:
AVERAGE LOANS TO AVERAGE DEPOSITS 67.99% 59.44% 56.36% 48.67% 44.61%
- ------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY TO TOTAL ASSETS 9.70 9.56 9.24 8.90 8.90
- ------------------------------------------------------------------------------------------
TIER 1 CAPITAL TO RISK WEIGHTED ASSETS 19.10 19.52 18.53 14.65 14.91
- ------------------------------------------------------------------------------------------
TOTAL CAPITAL TO RISK WEIGHTED ASSETS 20.41 20.79 19.61 15.43 15.66
- ------------------------------------------------------------------------------------------
TIER 1 LEVERAGE RATIO 9.60 9.47 9.19 8.96 8.78
- ------------------------------------------------------------------------------------------
22
THE FOLLOWING TABLE SETS FORTH CERTAIN UNAUDITED QUARTERLY FINANCIAL DATA FOR
THE PERIODS INDICATED:
SELECTED 2000 QUARTERLY DATA:
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- -------------------------------------------------------------------------------------------
INTEREST INCOME $8,597 $8,937 $8,872 $9,334
- -------------------------------------------------------------------------------------------
INTEREST EXPENSE 2,744 2,895 3,303 3,567
- -------------------------------------------------------------------------------------------
NET INTEREST INCOME 5,853 6,042 5,569 5,767
- -------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 126 126 126 122
- -------------------------------------------------------------------------------------------
OTHER INCOME, EXCLUDING
SECURITIES GAINS/(LOSSES) 1,440 1,541 1,502 1,272
- -------------------------------------------------------------------------------------------
SECURITIES GAINS/(LOSSES) 1 (197) (4) --
- -------------------------------------------------------------------------------------------
OTHER EXPENSE 4,528 4,139 3,709 4,259
- -------------------------------------------------------------------------------------------
INCOME TAX EXPENSE 911 1,063 1,096 873
- -------------------------------------------------------------------------------------------
NET INCOME $1,729 $2,058 $2,136 $1,785
===========================================================================================
EARNINGS PER SHARE-BASIC $ 0.60 $ 0.66 $ 0.70 $ 0.59
- -------------------------------------------------------------------------------------------
EARNINGS PER SHARE-DILUTED $ 0.59 $ 0.63 $ 0.69 $ 0.58
- -------------------------------------------------------------------------------------------
SELECTED 1999 QUARTERLY DATA:
(DOLLARS IN THOUSANDS
EXCEPT PER SHARE DATA) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ---------------------------------------------------------------------------------------------
INTEREST INCOME $7,660 $7,818 $8,039 $8,170
- ---------------------------------------------------------------------------------------------
INTEREST EXPENSE 2,611 2,538 2,574 2,618
- ---------------------------------------------------------------------------------------------
NET INTEREST INCOME 5,049 5,280 5,465 5,552
- ---------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 114 114 111 216
- ---------------------------------------------------------------------------------------------
OTHER INCOME, EXCLUDING
SECURITIES GAINS 1,405 1,244 1,249 1,349
- ---------------------------------------------------------------------------------------------
SECURITIES GAINS -- -- 16 --
- ---------------------------------------------------------------------------------------------
OTHER EXPENSE 3,498 3,721 3,954 4,110
- ---------------------------------------------------------------------------------------------
INCOME TAX EXPENSE 1,047 928 762 845
- ---------------------------------------------------------------------------------------------
NET INCOME $1,795 $1,761 $1,903 $1,730
=============================================================================================
EARNINGS PER SHARE-BASIC $ 0.60 $ 0.58 $ 0.59 $ 0.62
- ---------------------------------------------------------------------------------------------
EARNINGS PER SHARE-DILUTED $ 0.58 $ 0.57 $ 0.57 $ 0.60
- ---------------------------------------------------------------------------------------------
23
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS
PEAPACK-GLADSTONE FINANCIAL CORPORATION
We have audited the accompanying consolidated statements of condition of
Peapack-Gladstone Financial Corporation and subsidiary as of December 31, 2000
and 1999, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2000. These consolidated financial statements are the
responsibility of the Corporation's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
The 1999 consolidated statement of condition and the statements of income,
changes in stockholders' equity, and cash flows of Peapack-Gladstone Financial
Corporation for the years ended December 31, 1999 and 1998, have been restated
to reflect the pooling-of-interests transaction with Chatham Savings Bank, FSB
as described in Note 1 to the consolidated financial statements. We did not
audit the 1998 statements of income, changes in stockholders' equity, and cash
flows of Chatham Savings Bank, FSB, which statements reflect total net interest
income constituting 14.5 percent, in 1998, of the related consolidated totals.
Those statements were audited by other auditors whose report has been furnished
to us, and our opinion, insofar as it relates to the amounts included for
Chatham Savings Bank, FSB for the year ended December 31, 1998, is based solely
on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes, examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. We believe that our audits and the report of the other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors,
the consolidated financial statements referred to in the first paragraph present
fairly, in all material respects, the financial position of Peapack-Gladstone
Financial Corporation and subsidiary as of December 31, 2000 and 1999, and
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.
KPMG LLP
Short Hills, New Jersey
January 30, 2001
24
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31,
(Dollars in thousands) 2000 1999
- --------------------------------------------------------------------------------
ASSETS
CASH AND DUE FROM BANKS $ 17,881 $ 17,770
- --------------------------------------------------------------------------------
FEDERAL FUNDS SOLD 36,376 15,247
- --------------------------------------------------------------------------------
TOTAL CASH AND CASH EQUIVALENTS 54,257 33,017
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES (APPROXIMATE MARKET VALUE
$70,230 IN 2000 AND $60,839 in 1999) 69,575 61,672
- --------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE (AMORTIZED COST
$86,069 IN 2000 AND $104,385 IN 1999) 85,331 101,324
- --------------------------------------------------------------------------------
LOANS: 344,299 287,933
- --------------------------------------------------------------------------------
LESS: ALLOWANCE FOR LOAN LOSSES 3,435 2,962
- --------------------------------------------------------------------------------
NET LOANS 340,864 284,971
- --------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 11,661 9,718
- --------------------------------------------------------------------------------
ACCRUED INTEREST RECEIVABLE 4,164 3,444
- --------------------------------------------------------------------------------
GOODWILL 663 763
- --------------------------------------------------------------------------------
OTHER ASSETS 1,898 2,626
- --------------------------------------------------------------------------------
TOTAL ASSETS $568,413 $497,535
================================================================================
LIABILITIES
DEPOSITS:
NONINTEREST-BEARING DEMAND DEPOSITS $103,858 $ 87,034
- --------------------------------------------------------------------------------
INTEREST-bEARING DEPOSITS:
- --------------------------------------------------------------------------------
CHECKING 108,780 98,699
- --------------------------------------------------------------------------------
SAVINGS 74,657 82,962
- --------------------------------------------------------------------------------
MONEY MARKET ACCOUNTS 67,962 33,605
- --------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT OVER $100,000 40,064 33,637
- --------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT LESS THAN $100,000 114,939 108,151
- --------------------------------------------------------------------------------
TOTAL DEPOSITS 510,260 444,088
- --------------------------------------------------------------------------------
SHORT-TERM BORROWINGS -- 3,000
- --------------------------------------------------------------------------------
ACCRUED EXPENSES AND OTHER LIABILITIES 2,997 2,872
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 513,257 449,960
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
COMMON STOCK (NO PAR VALUE; STATED VALUE $1 2/3
PER SHARE; AUTHORIZED 10,000,000 SHARES;
ISSUED 3,038,715 SHARES IN 2000 and 3,027,148 IN 1999) 5,064 4,804
- --------------------------------------------------------------------------------
SURPLUS 25,104 19,462
- --------------------------------------------------------------------------------
TREASURY STOCK AT COST, 20,642 SHARES IN 2000
AND 12,493 SHARES IN 1999 (956) (655)
- --------------------------------------------------------------------------------
RETAINED EARNINGS 26,420 25,918
- --------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE
LOSS, NET OF INCOME TAX (476) (1,954)
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 55,156 47,575
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $568,413 $497,535
================================================================================
See accompanying notes to Consolidated Financial Statements
25
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
(Dollars in thousands, except per share amounts) 2000 1999 1998
- --------------------------------------------------------------------------------
INTEREST INCOME
INTEREST AND FEES ON LOANS $24,856 $20,129 $18,006
- --------------------------------------------------------------------------------
INTEREST ON INVESTMENT SECURITIES:
TAXABLE 3,469 2,921 4,229
- --------------------------------------------------------------------------------
TAX-EXEMPT 634 619 469
- --------------------------------------------------------------------------------
INTEREST AND DIVIDENDS ON SECURITIES
AVAILABLE FOR SALE:
TAXABLE 5,628 6,535 6,348
- --------------------------------------------------------------------------------
TAX-EXEMPT -- 6 5
- --------------------------------------------------------------------------------
INTEREST ON FEDERAL FUNDS SOLD 1,153 1,477 892
- --------------------------------------------------------------------------------
TOTAL INTEREST INCOME 35,740 31,687 29,949
- --------------------------------------------------------------------------------
INTEREST EXPENSE
INTEREST ON CHECKING ACCOUNT DEPOSITS 1,048 1,058 973
- --------------------------------------------------------------------------------
INTEREST ON SAVINGS ACCOUNT DEPOSITS 3,391 3,072 2,888
- --------------------------------------------------------------------------------
INTEREST ON CERTIFICATES OF DEPOSIT
OVER $100,000 1,843 1,846 1,561
- --------------------------------------------------------------------------------
INTEREST ON OTHER TIME DEPOSITS 6,227 4,365 5,421
- --------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 12,509 10,341 10,843
- --------------------------------------------------------------------------------
NET INTEREST INCOME 23,231 21,346 19,106
- --------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 500 555 521
- --------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 22,731 20,791 18,585
- --------------------------------------------------------------------------------
OTHER INCOME
SERVICE CHARGES AND FEES 1,777 2,101 1,913
- --------------------------------------------------------------------------------
TRUST FEES 3,604 3,002 2,241
- --------------------------------------------------------------------------------
SECURITIES (LOSSES)/GAINS (200) 16 178
- --------------------------------------------------------------------------------
OTHER INCOME 374 144 469
- --------------------------------------------------------------------------------
TOTAL OTHER INCOME 5,555 5,263 4,801
- --------------------------------------------------------------------------------
OTHER EXPENSES
SALARIES AND EMPLOYEE BENEFITS 9,041 7,942 7,536
- --------------------------------------------------------------------------------
PREMISES AND EQUIPMENT 3,035 2,811 2,557
- --------------------------------------------------------------------------------
MERGER-RELATED CHARGES 500 -- --
- --------------------------------------------------------------------------------
OTHER EXPENSES 4,059 4,530 3,709
- --------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 16,635 15,283 13,802
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE 11,651 10,771 9,584
INCOME TAX EXPENSE 3,943 3,582 3,550
- --------------------------------------------------------------------------------
NET INCOME $ 7,708 $ 7,189 $ 6,034
================================================================================
EARNINGS PER SHARE (Reflects 5% STOCK
DIVIDENDS IN 2000, 1999 AND 1998)
BASIC $ 2.55 $ 2.39 $ 2.00
- --------------------------------------------------------------------------------
DILUTED $ 2.49 $ 2.32 $ 1.94
================================================================================
See accompanying notes to Consolidated Financial Statements
26
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
ACCUMULATED
OTHER
COMPREHENSIVE
(DOLLARS IN THOUSANDS, EXCEPT COMMON TREASURY RETAINED INCOME
PER SHARE AMOUNTS) STOCK SURPLUS STOCK EARNINGS (LOSS) TOTAL
- --------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 $4,403 $ 7,375 $(367) $27,539 $476 $39,426
- --------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME:
NET INCOME 1998 6,034 6,034
UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF TAX OF $328) 567
LESS: RECLASSIFICATION ADJUSTMENT
FOR GAINS INCLUDED IN NET INCOME
(NET OF INCOME TAX OF $65) 113
---
NET UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX OF $263) 454 454
-----
TOTAL COMPREHENSIVE INCOME 6,488
DIVIDENDS DECLARED ($0.46 PER SHARE) (1,097) (1,097)
COMMON STOCK OPTIONS EXERCISED
AND RELATED TAX BENEFITS 68 459 527
COMMON STOCK DIVIDEND
(FIVE PERCENT) 193 6,197 (6,390) --
PURCHASE OF TREASURY STOCK (883) (883)
- --------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 $4,596 $13,640 $(791) $26,086 $930 $44,461
- --------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
NET INCOME 1999 7,189 7,189
UNREALIZED HOLDING LOSSES ON
SECURITIES ARISING DURING THE
PERIOD (NET OF TAX BENEFIT OF $1,352) (2,874)
LESS: RECLASSIFICATION ADJUSTMENT
FOR GAINS INCLUDED IN NET INCOME
(NET OF INCOME TAX OF $6) 10
--
NET UNREALIZED HOLDING LOSSES ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX OF $1,346) (2,884) (2,884)
------
TOTAL COMPREHENSIVE INCOME 4,305
DIVIDENDS DECLARED ($0.50 PER SHARE) (1,292) (1,292)
COMMON STOCK OPTIONS EXERCISED
AND RELATED TAX BENEFITS 6 55 (96) (35)
COMMON STOCK DIVIDEND
(FIVE PERCENT) 202 5,767 (5,969) --
TREASURY STOCK TRANSACTIONS 136 136
- --------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $4,804 $19,462 $(655) $25,918 $(1,954) $47,575
- --------------------------------------------------------------------------------------------------------
(continued on following page)
27
ACCUMULATED
OTHER
COMPREHENSIVE
(DOLLARS IN THOUSANDS, EXCEPT COMMON TREASURY RETAINED INCOME
PER SHARE AMOUNTS) STOCK SURPLUS STOCK EARNINGS (LOSS) TOTAL
- --------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
NET INCOME 2000 7,708 7,708
UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX OF $775) 1,351
LESS: RECLASSIFICATION ADJUSTMENT
FOR LOSSES INCLUDED IN NET INCOME
(NET OF INCOME TAX BENEFIT OF $73) (127)
---
NET UNREALIZED HOLDING GAINS ON
SECURITIES ARISING DURING THE
PERIOD (NET OF INCOME TAX OF $848) 1,478 1,478
-----
TOTAL COMPREHENSIVE INCOME 9,186
DIVIDENDS DECLARED ($0.54 PER SHARE) (1,592) (1,592)
COMMON STOCK OPTIONS EXERCISED
AND RELATED TAX BENEFITS 30 265 (7) 288
COMMON STOCK DIVIDEND
(FIVE PERCENT) 230 5,377 (5,607) --
TREASURY STOCK TRANSACTIONS (301) (301)
- --------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2000 $5,064 $25,104 $(956) $26,420 $(476) $55,156
- --------------------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements
28
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
(IN THOUSANDS) 2000 1999 1998
- ------------------------------------------------------------------------------------------
OPERATING ACTIVITIES:
NET INCOME $ 7,708 $ 7,189 $ 6,034
- ------------------------------------------------------------------------------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
DEPRECIATION 1,001 981 898
- ------------------------------------------------------------------------------------------
AMORTIZATION OF PREMIUM AND ACCRETION
OF DISCOUNT ON SECURITIES, NET 239 349 309
- ------------------------------------------------------------------------------------------
AMORTIZATION OF INTANGIBLE ASSET 100 100 100
- ------------------------------------------------------------------------------------------
PROVISION FOR LOAN LOSSES 500 555 521
- ------------------------------------------------------------------------------------------
BENEFIT FOR DEFERRED TAXES (185) (255) (164)
- ------------------------------------------------------------------------------------------
LOSS/(GAIN) ON SALE OF SECURITIES 200 (16) (178)
- ------------------------------------------------------------------------------------------
GAIN ON SALE OF LOANS -- -- (255)
- ------------------------------------------------------------------------------------------
(INCREASE) DECREASE IN ACCRUED INTEREST RECEIVABLE (720) 141 1
- ------------------------------------------------------------------------------------------
DECREASE (INCREASE) IN OTHER ASSETS 813 (1,955) (191)
INCREASE IN ACCRUED EXPENSES
AND OTHER LIABILITIES 125 1,533 700
- ------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,781 8,622 7,775
- ------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
PROCEEDS FROM MATURITIES OF INVESTMENT SECURITIES 15,205 21,770 32,294
- ------------------------------------------------------------------------------------------
PROCEEDS FROM MATURITIES OF SECURITIES
AVAILABLE FOR SALE 31,096 8,937 10,000
- ------------------------------------------------------------------------------------------
PROCEEDS FROM CALLS OF INVESTMENT SECURITIES 10 4,600 17,220
- ------------------------------------------------------------------------------------------
PROCEEDS FROM SALES AND CALLS OF SECURITIES
AVAILABLE FOR SALE 13,297 17,663 42,335
- ------------------------------------------------------------------------------------------
PURCHASE OF INVESTMENT SECURITIES (23,176) (22,676) (28,126)
- ------------------------------------------------------------------------------------------
PURCHASE OF SECURITIES AVAILABLE FOR SALE (27,203) (30,025) (60,192)
- ------------------------------------------------------------------------------------------
NET DECREASE IN SHORT-TERM INVESTMENTS -- 2,153 6,713
- ------------------------------------------------------------------------------------------
NET INCREASE IN LOANS (56,393) (41,344) (43,970)
- ------------------------------------------------------------------------------------------
NET DECREASE IN OTHER REAL ESTATE OWNED -- -- 340
- ------------------------------------------------------------------------------------------
PURCHASES OF PREMISES AND EQUIPMENT (2,944) (947) (1,485)
NET CASH USED IN INVESTING ACTIVITIES (50,108) (39,869) (24,871)
- ------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
NET INCREASE IN DEPOSITS 66,172 13,338 29,958
- ------------------------------------------------------------------------------------------
NET (DECREASE) OF SHORT-TERM BORROWINGS (3,000) -- --
- ------------------------------------------------------------------------------------------
DIVIDENDS PAID (1,592) (1,292) (1,097)
- ------------------------------------------------------------------------------------------
EXERCISE OF STOCK OPTIONS 288 (35) 527
- ------------------------------------------------------------------------------------------
PURCHASE OF TREASURY STOCK (301) (136) (883)
NET CASH PROVIDED BY FINANCING ACTIVITIES 61,567 11,875 28,505
- ------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS 21,240 (19,372) 11,409
- ------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 33,017 52,389 40,980
- ------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $54,257 $33,017 $52,389
==========================================================================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
CASH PAID DURING THE YEAR FOR:
INTEREST ON DEPOSITS $12,009 $10,167 $10,695
- ------------------------------------------------------------------------------------------
INCOME TAXES 3,984 3,697 3,591
- ------------------------------------------------------------------------------------------
See accompanying notes to Consolidated Financial Statements
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND ORGANIZATION: The consolidated financial
statements of the Corporation are prepared on the accrual basis and include the
accounts of the Corporation and its wholly-owned subsidiary, Peapack-Gladstone
Bank and its wholly-owned subsidiaries, Peapack-Gladstone Investment Company and
Peapack-Gladstone Mortgage Group, Inc. While the following footnotes include the
collective results of Peapack-Gladstone Financial Corporation and
Peapack-Gladstone Bank, these footnotes primarily reflect the Bank's and its
subsidiaries activities. All significant intercompany balances and transactions
have been eliminated from the accompanying consolidated financial statements.
BUSINESS: Peapack-Gladstone Bank, the subsidiary of the Corporation, provides a
full range of banking services to individual and corporate customers through its
branch operations in northwestern New Jersey. The Bank is subject to competition
from other financial institutions, is regulated by certain federal and state
agencies and undergoes periodic examinations by those regulatory authorities.
BASIS OF FINANCIAL STATEMENT PRESENTATION: The consolidated financial statements
have been prepared in accordance with generally accepted accounting principles.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the statement
of condition and revenues and expenses for that period. Actual results could
differ from those estimates.
The financial statements of prior years have been restated to include
Chatham Savings Bank, FSB, which was acquired on January 7, 2000, in a
transaction accounted for as a pooling of interests.
CASH AND CASH EQUIVALENTS: For purposes of the statements of cash flows, cash
and cash equivalents include cash and due from banks, federal funds sold and
interest bearing deposits. Generally, federal funds are sold for one-day
periods.
INVESTMENT SECURITIES: Investment securities are composed of debt securities
that the Corporation has the positive intent and ability to hold to maturity.
Such securities are stated at cost, adjusted for amortization of premium and
accretion of discount over the term of the investments.
SECURITIES AVAILABLE FOR SALE: Debt securities that cannot be categorized as
investment securities are classified as securities available for sale. Such
securities include debt securities to be held for indefinite periods of time and
not intended to be held to maturity, as well as marketable equity securities.
Securities held for indefinite periods of time include securities that
management intends to use as part of its asset/liability management strategy and
that may be sold in response to changes in interest rates, resultant prepayment
risk and other factors related to interest rate and resultant prepayment risk
changes. Securities available for sale are carried at fair value and unrealized
holding gains and losses (net of related tax effects) on such securities are
excluded from earnings, but are included in stockholders' equity as Accumulated
Other Comprehensive Income. Upon realization, such gains or losses are included
in earnings using the specific identification method.
30
LOANS: Loans are stated at the principal amount outstanding. Loan origination
fees and certain direct loan origination costs are deferred and recognized over
the life of the loan as an adjustment to the loan's yield. The accrual of income
on loans is discontinued if certain factors indicate reasonable doubt as to the
timely collectibility of such interest, generally when the loan becomes over 90
days delinquent. A non-accrual loan is not returned to an accrual status until
factors indicating doubtful collection no longer exist. The majority of the
loans are secured by real estate located within the Corporation's market area in
Northwestern New Jersey.
ALLOWANCE FOR LOAN LOSSES: The allowance for loan losses is maintained at a
level considered adequate to provide for potential loan losses inherent in the
portfolio. The allowance is based on management's evaluation of the loan
portfolio considering economic conditions, the volume and nature of the loan
portfolio, historical loan loss experience, and individual credit situations.
The allowance is increased by provisions charged to expense and reduced by net
charge-offs.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize loan losses, future additions
to the allowance may be necessary based on changes in economic conditions. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the allowance for loan losses. Such agencies may
require the Corporation to recognize additions to the allowance based on their
judgments about information available to them at the time of their examinations.
Management, considering current information and events regarding the
borrowers' ability to repay their obligations, considers a loan to be impaired
when it is probable that the Corporation will be unable to collect all amounts
due according to the contractual terms of the loan agreement. When a loan is
considered to be impaired, the amount of impairment is measured based on the
fair value of the collateral. Impairment losses are included in the allowance
for loan losses through provisions charged to operations.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation charges are computed using the
straight-line method. Premises and equipment are depreciated over the estimated
useful lives of the assets. Expenditures for maintenance and repairs are
expensed as incurred. The cost of major renewals and improvements are
capitalized. Gains or losses realized on routine dispositions are recorded as
other income or other expense.
OTHER REAL ESTATE OWNED: Other real estate owned is carried at fair value minus
estimated costs to sell, based on an independent appraisal. When a property is
acquired, the excess of the loan balance over the estimated fair value is
charged to the allowance for loan losses. Any subsequent write-downs that may be
required to the carrying value of the properties or losses on the sale of
properties are charged to the valuation allowance on other real estate owned or
to other expense.
INTANGIBLE ASSETS: Intangible assets resulting from acquisitions under the
purchase method of accounting consist of goodwill. Goodwill is being amortized
on a straight-line basis over 25 years.
31
INCOME TAXES: The Corporation files a consolidated Federal income tax return.
Separate State income tax returns are filed for each subsidiary based on current
laws and regulations.
The Corporation recognizes deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in its
financial statements or tax returns. The measurement of deferred tax assets and
liabilities is based on the enacted tax rates applicable to taxable income for
the years in which these temporary differences are expected to be recovered or
settled. Such tax assets and liabilities are adjusted for the effect of a change
in tax rates in the period of enactment.
STOCK OPTION PLAN: The Corporation applies the provisions of APB Opinion No. 25
and provides pro forma net income and pro forma earnings per share disclosures
for employee stock option grants as if the fair-value-based method defined in
SFAS No. 123 had been applied.
EARNINGS PER SHARE: The numerator of both the Basic and Diluted EPS is
equivalent to net income. The weighted average number of shares outstanding used
in the denominator for Diluted EPS is increased over the denominator used for
Basic EPS by the effect of potentially dilutive common stock equivalents
utilizing the treasury stock method. Common stock equivalents are common stock
options outstanding.
All share and per share amounts have been restated to reflect the 5 percent
stock dividends issued in 2000, 1999 and 1998.
The following table shows the calculation of both Basic and Diluted
earnings per share for the years ended December 31, 2000, 1999 and 1998:
(IN THOUSANDS, EXCEPT FOR SHARE DATA) 2000 1999 1998
- -----------------------------------------------------------------------------------------
NET INCOME $7,708 $7,189 $6,034
=========================================================================================
BASIC WEIGHTED AVERAGE SHARES OUTSTANDING 3,018,371 3,012,283 3,012,089
- -----------------------------------------------------------------------------------------
PLUS: COMMON STOCK EQUIVALENTS 71,429 86,449 91,004
- -----------------------------------------------------------------------------------------
DILUTED WEIGHTED AVERAGE SHARES OUTSTANDING 3,089,800 3,098,732 3,103,093
=========================================================================================
EARNINGS PER SHARE:
- -----------------------------------------------------------------------------------------
BASIC $ 2.55 $ 2.39 $ 2.00
- -----------------------------------------------------------------------------------------
DILUTED 2.49 2.32 1.94
- -----------------------------------------------------------------------------------------
TREASURY STOCK: Treasury stock is recorded using the cost method and accordingly
is presented as an unallocated reduction of stockholders' equity.
COMPREHENSIVE INCOME: Comprehensive income consists of net income and net
unrealized gains (losses) on securities available for sale and is presented in
the consolidated statements of changes in stockholders' equity.
RECLASSIFICATION: Certain reclassifications have been made in the 1998 and 1999
financial statements in order to conform to the 2000 presentation.
ACQUISITIONS: On January 7, 2000, the Corporation acquired Chatham Savings Bank,
FSB ("Chatham"). At the date of acquisition, Chatham had total assets of $74.5
million and deposits of $63.9 million, with two branch offices. The transaction
was accounted for using the pooling of interests method of accounting and
resulted in the issuance of approximately 321,017 shares of the Corporation's
common stock. Each share of common stock of Chatham was exchanged for 2.2930 of
the Corporation's common stock. (All share and per share amounts have been
restated to reflect the 5% stock dividend issued in November 2000). The
consolidated financial statements of Peapack-Gladstone Financial Corporation
have been
32
restated to include Chatham for all periods presented. Separate results of the
combining companies for the years ended December 31, 1999 and 1998 are as
follows:
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES
PEAPACK-GLADSTONE $17,977 $15,899
- --------------------------------------------------------------------------------
CHATHAM 2,814 2,686
- --------------------------------------------------------------------------------
$20,791 $18,585
================================================================================
NET INCOME
- --------------------------------------------------------------------------------
PEAPACK-GLADSTONE $ 6,621 $ 5,319
- --------------------------------------------------------------------------------
CHATHAM 568 715
- --------------------------------------------------------------------------------
$ 7,189 $ 6,034
================================================================================
As of December 31, 1997, stockholders' equity as previously reported was
$33.6 million and is $39.4 million as restated. During the first quarter of
2000, the Corporation recorded a merger-related charge of $500,000 related to
the acquisition of Chatham. These charges include only identified direct and
incremental costs associated with this acquisition. Items included in these
charges include the following: personnel expenses which include severance
payments and benefits for terminated employees, principally, senior executives
of Chatham; professional fees which include investment banking, accounting and
legal fees; and other expenses which include data processing and the write-off
of supplies and other assets not considered useful in the operation of the
combined entity.
2. INVESTMENT SECURITIES
A summary of amortized cost and approximate market value of investment
securities included in the consolidated statements of condition as of December
31, 2000 and 1999 follows:
2000
- ------------------------------------------------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------
U.S. TREASURY & GOVERNMENT AGENCIES $36,748 $525 $ (78) $37,195
- ------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 11,334 102 (148) 11,288
- ------------------------------------------------------------------------------------------
STATES AND POLITICAL SUBDIVISIONS 15,520 237 (36) 15,721
- ------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 5,973 80 (27) 6,026
- ------------------------------------------------------------------------------------------
$69,575 $944 $(289) $70,230
==========================================================================================
1999
- -------------------------------------------------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- -------------------------------------------------------------------------------------------
U.S. TREASURY & GOVERNMENT AGENCIES $31,455 $ 3 $ (724) $30,734
- -------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 12,654 81 (248) 12,487
- -------------------------------------------------------------------------------------------
STATES AND POLITICAL SUBDIVISIONS 14,595 159 (104) 14,650
- -------------------------------------------------------------------------------------------
OTHER DEBT SECURITIES 2,968 -- -- 2,968
- ------------------------------------------------------------------------------------------
$61,672 $243 $(1,076) $60,839
===========================================================================================
33
The amortized cost and approximate market value of investment securities as
of December 31, 2000, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or repay obligations with or without call or prepayment
penalties.
MATURING IN:
APPROXIMATE
(IN THOUSANDS) AMORTIZED COST MARKET VALUE
- --------------------------------------------------------------------------------
ONE YEAR OR LESS $ 7,043 $ 7,044
- --------------------------------------------------------------------------------
AFTER ONE YEAR THROUGH FIVE YEARS 37,941 38,351
- --------------------------------------------------------------------------------
AFTER FIVE YEARS THROUGH TEN YEARS 12,886 13,080
- --------------------------------------------------------------------------------
AFTER TEN YEARS 11,705 11,755
- --------------------------------------------------------------------------------
$69,575 $70,230
================================================================================
Securities having an approximate carrying value of $1,697,000 and $12,716,000 as
of December 31, 2000 and 1999, respectively, were pledged to secure public
funds, borrowings and for other purposes required or permitted by law. Gross
gains of $8,000 were realized in 1998. There were no gains in 2000 or 1999.
There were no gross realized losses in 2000, 1999 and 1998. There were no sales
of investment securities in 2000, 1999 or 1998 except for securities called by
issuers.
3. SECURITIES AVAILABLE FOR SALE
A summary of amortized cost and approximate market value of securities
available for sale included in the consolidated statements of condition as of
December 31, 2000 and 1999 follows:
2000
- ------------------------------------------------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------
U.S. TREASURY & GOVERNMENT AGENCIES $70,883 $111 $(586) $70,408
- ------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 1,882 1 (16) 1,867
- ------------------------------------------------------------------------------------------
STATES AND POLITICAL SUBDIVISIONS 240 -- (2) 238
- ------------------------------------------------------------------------------------------
OTHER SECURITIES 13,064 99 (345) 12,818
- ------------------------------------------------------------------------------------------
$86,069 $211 $(949) $85,331
==========================================================================================
1999
- ------------------------------------------------------------------------------------------
GROSS GROSS APPROXIMATE
AMORTIZED UNREALIZED UNREALIZED MARKET
(IN THOUSANDS) COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------
U.S. TREASURY & GOVERNMENT AGENCIES $ 94,318 $56 $(2,766) $ 91,608
- ------------------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES 2,364 -- (27) 2,337
- ------------------------------------------------------------------------------------------
STATES AND POLITICAL SUBDIVISIONS 240 -- (15) 225
- ------------------------------------------------------------------------------------------
OTHER SECURITIES 7,463 25 (334) 7,154
- ------------------------------------------------------------------------------------------
$104,385 $81 $(3,142) $101,324
==========================================================================================
34
The amortized cost and approximate market value of debt securities
available for sale as of December 31, 2000, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or repay obligations with or without call
or prepayment penalties.
MATURING IN:
APPROXIMATE
(IN THOUSANDS) AMORTIZED COST MARKET VALUE
- -------------------------------------------------------------------------------
ONE YEAR OR LESS $ 9,788 $ 9,792
- -------------------------------------------------------------------------------
AFTER ONE YEAR THROUGH FIVE YEARS 44,416 43,928
- -------------------------------------------------------------------------------
AFTER FIVE YEARS THROUGH TEN YEARS 25,387 25,123
- -------------------------------------------------------------------------------
AFTER TEN YEARS 6,478 6,488
- -------------------------------------------------------------------------------
$86,069 $85,331
================================================================================
Gross gains of $16,000 and $170,000 were realized in 1999 and 1998. There
were gross realized losses in 2000 of $200,000.
4. LOANS
Loans outstanding as of December 31, 2000 and 1999 consisted of the following:
(IN THOUSANDS) 2000 1999
- --------------------------------------------------------------------------------
LOANS SECURED BY 1-4 FAMILY $251,197 $208,639
- --------------------------------------------------------------------------------
COMMERCIAL REAL ESTATE 62,161 51,838
- --------------------------------------------------------------------------------
CONSTRUCTION LOANS 2,297 1,153
- --------------------------------------------------------------------------------
COMMERCIAL LOANS 13,019 12,541
- --------------------------------------------------------------------------------
CONSUMER LOANS 14,084 12,413
- --------------------------------------------------------------------------------
OTHER LOANS 1,541 1,349
- --------------------------------------------------------------------------------
TOTAL LOANS $344,299 $287,933
================================================================================
Non-accrual loans totaled $325,000 and $386,000 at December 31, 2000 and
1999, respectively. Loans past due 90 days or more and still accruing interest
totaled $75,000 and $205,000 at December 31, 2000 and 1999, respectively. There
are no commitments to lend additional amounts on non-accrual loans. The amount
of interest income recognized on year-end non-accrual loans totaled $8,000,
$3,000 and $17,000 in 2000, 1999 and 1998, respectively. Interest income of
$22,000, $39,000 and $68,000 would have been recognized during 2000, 1999 and
1998, respectively, under contractual terms for such non-accrual loans.
Loans that met the criteria of troubled debt restructuring totaled $325,000
and $255,000 at December 31, 2000 and 1999, respectively. The amount of interest
income recognized on troubled debt restructurings in 2000, 1999 and 1998 totaled
$17,000, $32,000 and $23,000, respectively. Interest income of approximately
$33,000, $40,000 and $43,000 would have been recognized during 2000, 1999 and
1998, based on original terms. There are no commitments to lend additional
amounts on troubled debt restructurings.
The Corporation defines an impaired loan as an investment in a loan that is
on non-accrual status with a principal outstanding balance in excess of
$100,000. Residential mortgage loans, a group of homogeneous loans that are
collectively evaluated for impairment, are excluded. There was no recorded
investment in impaired loans as of December 31, 2000 and 1999 and no investments
in impaired loans during 2000 and 1999.
35
5. ALLOWANCE FOR LOAN LOSSES
A summary of changes in the allowance for loan losses for the years
indicated follows:
YEARS ENDED DECEMBER 31,
(IN THOUSANDS) 2000 1999 1998
- --------------------------------------------------------------------------------
BALANCE, BEGINNING OF YEAR $2,962 $2,428 $2,022
- --------------------------------------------------------------------------------
PROVISION CHARGED TO EXPENSE 500 555 521
- --------------------------------------------------------------------------------
LOANS CHARGED-OFF (174) (122) (187)
- --------------------------------------------------------------------------------
RECOVERIES 147 101 72
- --------------------------------------------------------------------------------
BALANCE, END OF YEAR $3,435 $2,962 $2,428
================================================================================
6. PREMISES AND EQUIPMENT
Premises and equipment as of December 31, 2000 and 1999 follows:
(IN THOUSANDS) 2000 1999
- --------------------------------------------------------------------------------
LAND $ 2,554 $ 2,554
- --------------------------------------------------------------------------------
BUILDINGS 5,994 5,232
- --------------------------------------------------------------------------------
FURNITURE AND EQUIPMENT 6,493 5,944
- --------------------------------------------------------------------------------
LEASEHOLD IMPROVEMENTS 3,049 2,635
- --------------------------------------------------------------------------------
PROJECTS IN PROGRESS 1,268 535
- --------------------------------------------------------------------------------
19,358 16,900
- --------------------------------------------------------------------------------
LESS: ACCUMULATED DEPRECIATION 7,697 7,182
- --------------------------------------------------------------------------------
TOTAL $11,661 $ 9,718
================================================================================
Depreciation expense amounted to $1,001,000, $981,000 and $898,000 for the
years ended December 31, 2000, 1999 and 1998, respectively.
7. DEPOSITS
Interest expense on time deposits of $100,000 or more totaled $1.8 million,
$1.8 million and $1.6 million in 2000, 1999 and 1998, respectively.
The scheduled maturities of time deposits as of December 31, 2000 are as
follows:
(IN THOUSANDS)
- --------------------------------------------------------------------------------
THREE MONTHS OR LESS $ 40,550
- --------------------------------------------------------------------------------
OVER THREE MONTHS THROUGH TWELVE MONTHS 89,210
- --------------------------------------------------------------------------------
OVER TWELVE MONTHS 25,243
- --------------------------------------------------------------------------------
TOTAL $155,003
================================================================================
36
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Corporation discloses estimated fair values for its significant
financial instruments. Because no market exists for a significant portion of the
Corporation's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision. Changes
in assumptions could significantly affect the estimates.
The following methods and assumptions were used to estimate the fair value
of each class of significant financial instruments:
CASH AND SHORT-TERM INVESTMENTS - The carrying amount of cash and
short-term investments is considered to be fair value.
SECURITIES - The fair value of securities is based upon quoted market
prices or dealer quotes.
LOANS - The fair value of loans is estimated by discounting the future cash
flows using the build-up approach consisting of four components: the risk-free
rate, credit quality, operating expense and prepayment option price.
DEPOSITS - The fair value of deposits with no stated maturity, such as
demand deposits, checking accounts, savings and money market accounts, is equal
to the carrying amount. The fair value of certificates of deposit is based on
the discounted value of contractual cash flows.
The following table summarizes carrying amounts and fair values for
financial instruments at December 31, 2000 and 1999:
(IN THOUSANDS) 2000 1999
- -----------------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
- -----------------------------------------------------------------------------------------
FINANCIAL ASSETS:
CASH AND CASH EQUIVALENTS $ 54,257 $ 54,257 $ 33,017 $ 33,017
- -----------------------------------------------------------------------------------------
INVESTMENT SECURITIES 69,575 70,230 61,672 60,839
- -----------------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE 85,331 85,331 101,324 101,324
- -----------------------------------------------------------------------------------------
LOANS, NET OF ALLOWANCE
FOR LOAN LOSSES 340,864 339,461 284,971 277,324
- -----------------------------------------------------------------------------------------
FINANCIAL LIABILITIES:
DEPOSITS 510,260 510,862 444,088 444,088
- -----------------------------------------------------------------------------------------
37
9. INCOME TAXES
The income tax expense included in the consolidated financial statements
for the years ended December 31, 2000, 1999 and 1998, is allocated as follows:
(IN THOUSANDS) 2000 1999 1998
- --------------------------------------------------------------------------------
FEDERAL:
CURRENT EXPENSE $4,014 $3,639 $3,294
- --------------------------------------------------------------------------------
DEFERRED BENEFIT (180) (225) (131)
- --------------------------------------------------------------------------------
STATE:
CURRENT EXPENSE 114 198 420
- --------------------------------------------------------------------------------
DEFERRED BENEFIT (5) (30) (33)
- --------------------------------------------------------------------------------
TOTAL INCOME TAX EXPENSE $3,943 $3,582 $3,550
================================================================================
Total income tax expense differed from the amounts computed by applying the
U.S. Federal income tax rate of 34% in 2000, 1999 and 1998 to income before
taxes as a result of the following:
(IN THOUSANDS) 2000 1999 1998
- --------------------------------------------------------------------------------------------
COMPUTED "EXPECTED" TAX EXPENSE $3,961 $3,662 $3,258
- --------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN TAXES RESULTING FROM:
TAX-EXEMPT INCOME (217) (210) (170)
- --------------------------------------------------------------------------------------------
STATE INCOME TAXES 72 111 255
- --------------------------------------------------------------------------------------------
OTHER 127 19 207
- --------------------------------------------------------------------------------------------
$3,943 $3,582 $3,550
============================================================================================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of December
31, 2000 and 1999 are as follows:
(IN THOUSANDS) 2000 1999
- --------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
LOANS, PRINCIPALLY DUE TO ALLOWANCE FOR
LOAN LOSSES AND DEFERRED FEE INCOME $1,171 $ 995
- --------------------------------------------------------------------------------
POST RETIREMENT BENEFITS OTHER THAN PENSIONS 162 50
- --------------------------------------------------------------------------------
START-UP & ORGANIZATION COSTS 71 81
- --------------------------------------------------------------------------------
UNREALIZED LOSS ON SECURITIES AVAILABLE FOR SALE 261 1,109
- --------------------------------------------------------------------------------
TOTAL GROSS DEFERRED ASSETS $1,665 $2,235
- --------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
INVESTMENT SECURITIES, PRINCIPALLY DUE TO
THE ACCRETION OF BOND DISCOUNT 29 33
- --------------------------------------------------------------------------------
DEFERRED LOAN ORIGINATION COSTS AND FEES 263 105
- --------------------------------------------------------------------------------
BANK PREMISES AND EQUIPMENT PRINCIPALLY
DUE TO DIFFERENCES IN DEPRECIATION 463 524
- --------------------------------------------------------------------------------
TOTAL GROSS DEFERRED LIABILITIES 755 662
- --------------------------------------------------------------------------------
NET DEFERRED TAX ASSET $ 910 $1,573
================================================================================
38
10. BENEFIT PLANS
The Corporation sponsors a non-contributory defined benefit pension plan
that covers substantially all salaried employees. The benefits are based on an
employee's compensation, age at retirement and years of service. It is the
policy of the Corporation to fund not less than the minimum funding amount
required by the Employee Retirement Income Security Act (ERISA). Plan assets
primarily consist of U.S. government agencies and common stock.
The following table shows the change in benefit obligation, the change in
plan assets and the funded status for the plan at December 31,
(IN THOUSANDS) 2000 1999
- --------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION:
BENEFIT OBLIGATION AT BEGINNING OF YEAR $4,313 $3,715
- --------------------------------------------------------------------------------
SERVICE COST 474 558
- --------------------------------------------------------------------------------
INTEREST COST 286 225
- --------------------------------------------------------------------------------
ACTUARIAL (GAIN)/LOSS (698) 65
- --------------------------------------------------------------------------------
BENEFITS PAID (56) (250)
- --------------------------------------------------------------------------------
BENEFIT OBLIGATION AT END OF YEAR $4,319 $4,313
================================================================================
CHANGE IN PLAN ASSETS:
FAIR VALUE OF PLAN ASSETS AT BEGINNING OF YEAR $4,874 $4,553
- --------------------------------------------------------------------------------
ACTUAL RETURN ON PLAN ASSETS 88 519
- --------------------------------------------------------------------------------
EMPLOYER CONTRIBUTION 318 52
- --------------------------------------------------------------------------------
BENEFITS PAID (56) (250)
- --------------------------------------------------------------------------------
FAIR VALUE OF PLAN ASSETS AT END OF YEAR $5,224 $4,874
================================================================================
(IN THOUSANDS) 2000 1999
- --------------------------------------------------------------------------------
FUNDED STATUS $ 905 $ 562
- --------------------------------------------------------------------------------
UNRECOGNIZED TRANSITION ASSET (58) (65)
- --------------------------------------------------------------------------------
UNRECOGNIZED PRIOR SERVICE COST (4) (4)
- --------------------------------------------------------------------------------
UNRECOGNIZED NET ACTUARIAL GAIN (1,137) (812)
- --------------------------------------------------------------------------------
ACCRUED BENEFIT COST $ (294) $ (319)
================================================================================
Net periodic expense for the years ended December 31 included the following
components:
(IN THOUSANDS) 2000 1999 1998
- --------------------------------------------------------------------------------
SERVICE COST $474 $558 $484
- --------------------------------------------------------------------------------
INTEREST COST 286 225 189
- --------------------------------------------------------------------------------
Expected RETURN on PLAN ASSETS (412) (343) (295)
- --------------------------------------------------------------------------------
Amortization of:
Net Gain (49) (11) --
- --------------------------------------------------------------------------------
UNRECOGNIZED PRIOR SERVICE COST 1 1 1
- --------------------------------------------------------------------------------
UNRECOGNIZED REMAINING NET ASSETS (7) (7) (7)
- --------------------------------------------------------------------------------
NET PERIODIC PENSION COST $293 $423 $372
================================================================================
39
The following table shows the actuarial assumption applied for the plan at
December 31,
(IN THOUSANDS) 2000 1999 1998
- --------------------------------------------------------------------------------
WEIGHTED-AVERAGE DISCOUNT RATE 8% 6% 6%
- --------------------------------------------------------------------------------
WEIGHTED-AVERAGE RATE OF INCREASE
ON FUTURE COMPENSATION 3% 3% 3%
- --------------------------------------------------------------------------------
WEIGHTED-AVERAGE EXPECTED LONG-TERM
RATE OF RETURN ON PLAN ASSETS 8% 7.5% 7.5%
- --------------------------------------------------------------------------------
SAVINGS AND PROFIT SHARING PLANS:
In addition to the retirement plan, the Corporation sponsors a profit
sharing plan and a savings plan under Section 401(k) of the Internal Revenue
Code, covering substantially all salaried employees over the age of 21 with at
least 12 months service. Under the savings portion of the plan, employee
contributions are partially matched by the Corporation. Expense for the savings
plan was approximately $30,000, $25,000 and $24,000 in 2000, 1999 and 1998,
respectively. Contributions to the profit sharing portion are made at the
discretion of the Board of Directors and all funds are invested solely in
Corporation stock. The contribution to the profit sharing plan was $275,000 in
2000, $250,000 in 1999 and $200,000 in 1998.
11. STOCK OPTION PLANS
The Corporation's incentive stock option plans allow the granting of up to
208,952 shares of the Corporation's common stock to certain key employees. The
options granted under this plan are, in general, exercisable not earlier than
one year after the date of grant, at a price equal to the fair market value of
the common stock on the date of grant, and expire not more than ten years after
the date of grant. The stock options will vest during a period of up to five
years after the date of grant. Changes in options outstanding during the past
three years were as follows:
OPTION PRICE
SHARES PER SHARE
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 120,132 $14.80-$34.22
- --------------------------------------------------------------------------------
GRANTED DURING 1998 1,907 46.65-51.02
- --------------------------------------------------------------------------------
EXERCISED DURING 1998 (4,183) 31.52
- --------------------------------------------------------------------------------
FORFEITED DURING 1998 (1,416) 14.80-31.52
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 116,440 $14.80-$51.02
- --------------------------------------------------------------------------------
GRANTED DURING 1999 28,324 46.65-54.62
- --------------------------------------------------------------------------------
EXERCISED DURING 1999 (5,826) 14.80-31.52
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 138,938 $14.80-$54.62
- --------------------------------------------------------------------------------
GRANTED DURING 2000 6,276 36.19-45.50
- --------------------------------------------------------------------------------
EXERCISED DURING 2000 (9,551) 14.80-31.52
- --------------------------------------------------------------------------------
FORFEITED DURING 2000 (896) 31.52-45.50
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 134,767 $14.80-$54.62
================================================================================
40
At December 31, 2000, the number of options exercisable was 84,393 and the
weighted-average price of those options was $22.49 per share. At December 31,
1999, the number of options exercisable was 66,417 and the weighted-average
price of those options was $18.61 per share.
The Corporation has non-qualified stock option plans for non-employee
directors. The plan allows the granting of up to 113,448 shares of the
Corporation's common stock. The options granted under this plan are, in general,
exercisable not earlier than one year after the date of grant, at a price equal
to the fair market value of the common stock on the date of grant, and expire
not more than ten years after the date of grant. The stock options will vest
during a period of up to five years after the date of grant. Changes in options
outstanding during the past three years were as follows:
OPTION PRICE
SHARES PER SHARE
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 58,349 $14.80-$18.00
- --------------------------------------------------------------------------------
GRANTED DURING 1998 28,941 46.65
- --------------------------------------------------------------------------------
EXERCISED DURING 1998 (1,158) 46.65
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 86,132 $14.80-$46.65
- --------------------------------------------------------------------------------
EXERCISED DURING 1999 (2,425) 14.80
- --------------------------------------------------------------------------------
FORFEITED DURING 1999 (4,109) 14.80-46.65
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 79,598 $14.80-$46.65
- --------------------------------------------------------------------------------
GRANTED DURING 2000 1,736 43.81
- --------------------------------------------------------------------------------
EXERCISED DURING 2000 (2,015) 14.80-43.33
- --------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 79,319 $14.80-$43.33
- --------------------------------------------------------------------------------
At December 31, 2000, the number of options exercisable was 61,949 and the
weighted-average price of those options was $20.40. At December 31, 1999, the
number of options exercisable was 48,059 and the weighted-average price of those
options was $18.50.
At December 31, 2000, there were 75,162 additional shares available for
grant under the Plans. The per share weighted-average fair value of stock
options granted during 2000, 1999 and 1998 was $10.48, $11.30 and $10.46 on the
date of grant using the Black Scholes option-pricing model with the following
weighted-average assumptions: 2000 - expected dividend yield of 1.40%, expected
volatility of 21%, risk-free interest rate of 5.97%, and an expected life of 5
years; 1999--expected dividend yield of 0.96%, expected volatility of 17%,
risk-free interest rate of 4.88%, and an expected life of 5 years; 1998 -
expected dividend yield of 0.82%, expected volatility of 9%, risk-free interest
rate of 5.65%, and an expected life of 5 years; 2000--expected dividend yield of
1.40%, expected volatility of 21%, risk-free interest rate of 5.97%, and an
expected life of 5 years;
41
The Corporation applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Corporation determined compensation cost based
on the fair value at the grant date for its stock options under SFAS No. 123,
the Corporation's net income and earnings per share would have been reduced to
the pro forma amounts indicated below:
(IN THOUSANDS EXCEPT PER SHARE DATA) 2000 1999 1998
- --------------------------------------------------------------------------------
NET INCOME:
AS REPORTED $7,708 $7,189 $6,034
- --------------------------------------------------------------------------------
PRO FORMA $7,421 $6,991 $5,889
- --------------------------------------------------------------------------------
EARNINGS PER SHARE:
AS REPORTED
- --------------------------------------------------------------------------------
BASIC $2.55 $2.39 $2.00
- --------------------------------------------------------------------------------
DILUTED $2.49 $2.32 $1.94
- --------------------------------------------------------------------------------
PRO FORMA
- --------------------------------------------------------------------------------
BASIC $2.46 $2.32 $1.96
- --------------------------------------------------------------------------------
DILUTED $2.40 $2.26 $1.90
- --------------------------------------------------------------------------------
12. COMMITMENTS
The Corporation, in the ordinary course of business, is a party to
litigation arising from the conduct of its business. Management does not
consider that its actions depart from routine legal proceedings and such actions
will not affect its financial position or results of its operations in any
material manner. There are various outstanding commitments and contingencies,
such as guarantees and credit extensions, including loan commitments of $66.0
million and $43.0 million and letters of credit of $4.0 million and $1.6 million
at December 31, 2000 and 1999, respectively, which are not included in the
accompanying consolidated financial statements.
For commitments to originate loans, the Corporation's maximum exposure to
credit risk is represented by the contractual amount of those instruments. Those
commitments represent ultimate exposure to credit risk only to the extent that
they are subsequently drawn upon by customers. The Corporation uses the same
credit policies and underwriting standards in making loan commitments as it does
for on-balance-sheet instruments. For loan commitments, the Corporation would
generally be exposed to interest rate risk from the time a commitment is issued
with a defined contractual interest rate.
At December 31, 2000, the Corporation was obligated under non-cancelable
operating leases for certain premises. Rental expense aggregated $718,000,
$805,000 and $478,000 for the years ended December 31, 2000, 1999 and 1998,
respectively, which is included in premises and equipment expense in the
consolidated statements of income.
The minimum annual lease payments under the terms of the lease agreements,
as of December 31, 2000, were as follows:
(in thousands)
- --------------------------------------------------------------------------------
2001 $ 862
- --------------------------------------------------------------------------------
2002 859
- --------------------------------------------------------------------------------
2003 858
- --------------------------------------------------------------------------------
2004 633
- --------------------------------------------------------------------------------
2005 629
- --------------------------------------------------------------------------------
THEREAFTER 5,695
- --------------------------------------------------------------------------------
TOTAL $9,536
================================================================================
42
13. REGULATORY CAPITAL
The Bank is subject to various regulatory capital requirements administered
by the Federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's consolidated financial statements. Under capital adequacy guidelines and
the regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weighting and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 2000, that the Bank
meets all capital adequacy requirements to which it is subject.
As of December 31, 2000, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based
and Tier I leverage ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The Bank's actual capital amounts and ratios are also presented in the
table.
TO BE WELL
CAPITALIZED UNDER FOR CAPITAL
PROMPT CORRECTIVE ADEQUACY
(IN THOUSANDS) ACTUAL ACTION PROVISIONS PURPOSES
- --------------------------------------------------------------------------------------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- --------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 2000:
TOTAL CAPITAL
(TO RISK-WEIGHTED ASSETS) $53,356 20.4% $26,139 10.0% $20,911 8.0%
- --------------------------------------------------------------------------------------------------
TIER I CAPITAL
(TO RISK-WEIGHTED ASSETS) 49,921 19.1 15,683 6.0 10,455 4.0
- --------------------------------------------------------------------------------------------------
TIER I CAPITAL
(TO AVERAGE ASSETS) 49,921 9.6 25,992 5.0 15,595 3.0
- --------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1999:
TOTAL CAPITAL
(TO RISK-WEIGHTED ASSETS) $48,815 20.8% $23,202 10.0% $18,562 8.0%
- --------------------------------------------------------------------------------------------------
TIER I CAPITAL
(TO RISK-WEIGHTED ASSETS) 45,853 19.5 13,921 6.0 9,281 4.0
- --------------------------------------------------------------------------------------------------
TIER I CAPITAL
(TO AVERAGE ASSETS) 45,853 9.5 24,217 5.0 14,530 3.0
- --------------------------------------------------------------------------------------------------
43
14. CONDENSED FINANCIAL STATEMENTS OF PEAPACK-GLADSTONE FINANCIAL CORPORATION
(PARENT COMPANY ONLY):
The following information of the parent company only financial statements
as of and for the year ended December 31, 2000 should be read in conjunction
with the notes to the consolidated financial statements.
STATEMENTS OF CONDITION
DECEMBER 31,
(IN THOUSANDS) 2000 1999
- --------------------------------------------------------------------------------
ASSETS:
CASH $ 1,577 $ 466
- --------------------------------------------------------------------------------
INVESTMENT SECURITIES -- 498
- --------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE 3,719 1,953
- --------------------------------------------------------------------------------
INVESTMENT IN SUBSIDIARY 50,024 44,741
- --------------------------------------------------------------------------------
OTHER ASSETS 228 368
- --------------------------------------------------------------------------------
TOTAL ASSETS $55,548 $48,026
================================================================================
LIABILITIES:
OTHER LIABILITIES $ 392 $ 451
- --------------------------------------------------------------------------------
TOTAL LIABILITIES 392 451
- --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
COMMON STOCK 5,064 4,804
- --------------------------------------------------------------------------------
SURPLUS 25,104 19,462
- --------------------------------------------------------------------------------
TREASURY STOCK (956) (655)
- --------------------------------------------------------------------------------
RETAINED EARNINGS 26,420 25,918
- --------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE LOSS, NET OF INCOME TAX (476) (1,954)
- --------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 55,156 47,575
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $55,548 $48,026
================================================================================
STATEMENTS OF INCOME
YEAR ENDED
DECEMBER 31,
(IN THOUSANDS) 2000 1999
- --------------------------------------------------------------------------------
INCOME:
DIVIDEND FROM BANK $ 4,000 $ 3,000
- --------------------------------------------------------------------------------
OTHER INCOME 212 99
- --------------------------------------------------------------------------------
TOTAL INCOME 4,212 3,099
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------
OTHER EXPENSES 389 216
- --------------------------------------------------------------------------------
TOTAL EXPENSES 389 216
- --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX BENEFIT AND
EQUITY IN UNDISTRIBUTED EARNINGS OF BANK 3,823 2,883
- --------------------------------------------------------------------------------
INCOME TAX EXPENSE (BENEFIT) 15 (39)
- --------------------------------------------------------------------------------
NET INCOME BEFORE EQUITY IN UNDISTRIBUTED
EARNINGS OF BANK 3,808 2,922
- --------------------------------------------------------------------------------
EQUITY IN UNDISTRIBUTED EARNINGS OF BANK 3,900 4,267
- --------------------------------------------------------------------------------
NET INCOME $ 7,708 $ 7,189
================================================================================
44
STATEMENTS OF CASH FLOWS
YEAR ENDED
December 31,
(IN THOUSANDS) 2000 1999
- --------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 7,708 $ 7,189
- --------------------------------------------------------------------------------
LESS EQUITY IN UNDISTRIBUTED EARNINGS (3,900) (4,267)
- --------------------------------------------------------------------------------
AMORTIZATION AND ACCRETION ON SECURITIES (5) (4)
- --------------------------------------------------------------------------------
(INCREASE)/DECREASE IN OTHER ASSETS (4) 15
- --------------------------------------------------------------------------------
INCREASE IN OTHER LIABILITIES 32 150
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,831 3,083
- --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE 1,001 --
- --------------------------------------------------------------------------------
PURCHASE OF SECURITIES AVAILABLE FOR SALE (2,116) (1,583)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY INVESTING ACTIVITIES (1,115) (1,583)
- --------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
DIVIDENDS PAID (1,592) (1,292)
- --------------------------------------------------------------------------------
EXERCISE OF STOCK OPTIONS 288 (35)
- --------------------------------------------------------------------------------
TREASURY STOCK TRANSACTIONS (301) (136)
- --------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES (1,605) (1,463)
- --------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,111 37
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 466 429
- --------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,577 $ 466
================================================================================
STOCK PRICES (Unaudited):
The following table shows the 2000 and 1999 range of prices paid on known
trades of Corporation common stock.
DIVIDEND
2000 HIGH LOW PER SHARE
- --------------------------------------------------------------------------------
1st QUARTER $42.85 $38.92 $0.13
- --------------------------------------------------------------------------------
2nd QUARTER 36.66 35.71 0.13
- --------------------------------------------------------------------------------
3rd QUARTER 36.90 36.66 0.14
- --------------------------------------------------------------------------------
4th QUARTER 42.94 36.90 0.14
- --------------------------------------------------------------------------------
DIVIDEND
1999 HIGH LOW PER SHARE
- --------------------------------------------------------------------------------
1st Quarter $53.10 $51.31 $0.12
- --------------------------------------------------------------------------------
2nd Quarter 51.31 50.00 0.12
- --------------------------------------------------------------------------------
3rd Quarter 50.00 48.10 0.13
- --------------------------------------------------------------------------------
4th Quarter 47.62 42.86 0.13
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
CORPORATE ADDRESS STOCK LISTING INDEPENDENT AUDITORS
- ------------------------------------------------------------------------------------------
158 Route 206, North Peapack-Gladstone KPMG, LLP
Gladstone, New Jersey 07934 Financial Corporation 150 John F. Kennedy Parkway
(908) 234-0700 common stock is traded on Short Hills, New Jersey
www.pgbank.com the American Stock 07078
- -------------- Exchange under the symbol PGC and
reported in the Wall Street Journal
and most major newspapers.
ANNUAL MEETING TRANSFER AGENT SHAREHOLDER RELATIONS
- -------------------------------------------------------------------------------------------
The annual meeting of First City Transfer Company Arthur F. Birmingham,
shareholders of PO Box 170 Senior Vice President and
Peapack-Gladstone Financial Iselin, New Jersey 08830 Treasurer
Corporation will be held on (908) 719-4308
April 24, 2001 at 2:00 p.m. birmingham@pgbank.com
---------------------
45
OFFICER
- -----------------------------------------------------------------------------------------------------------------
T. LEONARD HILL Chairman of the Board*
--------------------------------------------------------------------
GLADSTONE FRANK A. KISSEL President & CEO*
LOAN AND --------------------------------------------------------------------
ADMINISTRATION ROBERT M. ROGERS Senior Vice President & COO *
BUILDING --------------------------------------------------------------------
ARTHUR F. BIRMINGHAM Senior Vice President & CFO *
--------------------------------------------------------------------
GARRETT P. BROMLEY Senior Vice President &
Chief Credit Officer
--------------------------------------------------------------------
PAUL W. BELL Senior Vice President &
Security Officer
--------------------------------------------------------------------
BARBARA A. GRECO Senior Vice President &
Personnel Officer
--------------------------------------------------------------------
TODD T. BRUNGARD Vice President
--------------------------------------------------------------------
KAREN M. CHIARELLO Vice President & Auditor
--------------------------------------------------------------------
JEREMY H. GREENMAN Vice President
--------------------------------------------------------------------
V. SHERRI LICATA Vice President
--------------------------------------------------------------------
RAYMOND P. MACK Vice President
--------------------------------------------------------------------
ELIZABETH B. MATLACK Vice President
--------------------------------------------------------------------
TERESA A. PETERS Vice President
--------------------------------------------------------------------
ROBERT PFUNDSTEIN Vice President
--------------------------------------------------------------------
MARY M. RUSSELL Vice President &
Assistant Comptroller
--------------------------------------------------------------------
JOHN A. SCERBO Vice President
--------------------------------------------------------------------
PATRICIA J. SCHWARTZ Vice President
--------------------------------------------------------------------
JAMES S. STADTMUELLER Vice President
--------------------------------------------------------------------
MARIA FORNARO Assistant Vice President
--------------------------------------------------------------------
KAREN R. HORVATH Assistant Vice President &
Assistant Comptroller
--------------------------------------------------------------------
VALERIE L. KODAN Assistant Vice President
--------------------------------------------------------------------
KATHRYN M. NEIGH Assistant Vice President
--------------------------------------------------------------------
PAULA A. PHILHOWER Assistant Vice President
--------------------------------------------------------------------
CHRISTOPHER P. POCQUAT Assistant Vice President
--------------------------------------------------------------------
S. SHAY SCHOENBAUM Assistant Vice President &
Marketing Director
--------------------------------------------------------------------
PATRICIA A. STUMP Assistant Vice President
--------------------------------------------------------------------
EDWARD J. SWEENEY Assistant Vice President
--------------------------------------------------------------------
FRANK C. WALDRON Assistant Vice President
--------------------------------------------------------------------
SANDRA BORNGESSER Assistant Cashier
--------------------------------------------------------------------
MARJORIE A. DZWONCZYK Assistant Cashier &
CRA and Compliance Officer
--------------------------------------------------------------------
SHERRI L. HALLETT Assistant Cashier
--------------------------------------------------------------------
DAVID L. PETRY Assistant Cashier
--------------------------------------------------------------------
DIANE M. RIDOLFI Assistant Cashier
--------------------------------------------------------------------
SCOTT T. SEARLE Assistant Cashier
- -----------------------------------------------------------------------------------------------------------------
*Donotes a Holding Company Officer
- -----------------------------------------------------------------------------------------------------------------
TRUST DEPARTMENT CRAIG C. SPENGEMAN Senior Vice President &
GLADSTONE Senior Trust Officer *
--------------------------------------------------------------------
BRYANT K. ALFORD Vice President & Trust Officer
--------------------------------------------------------------------
JOHN M. BONK Vice President & Trust Officer
--------------------------------------------------------------------
RICHARD K. DONNELLY Vice President & Trust Officer
--------------------------------------------------------------------
JOHN C. KAUTZ Vice President & Trust Officer
--------------------------------------------------------------------
ROY C. MILLER Vice President & Trust Officer
--------------------------------------------------------------------
SUSAN K. SHEEHAN Vice President & Trust Officer
--------------------------------------------------------------------
ANNE M. SMITH Vice President & Trust Officer
--------------------------------------------------------------------
KURT G. TALKE Vice President & Trust Officer
--------------------------------------------------------------------
JENNIFER DAVIS Assistant Vice President & Trust Officer
--------------------------------------------------------------------
CATHERINE A. McCATHARN Assistant Trust Officer &
Secretary *
--------------------------------------------------------------------
EDWARD P. NICOLICCHIA Assistant Trust Officer
- -----------------------------------------------------------------------------------------------------------------
BERNARDSVILLE CHARLES A. STUDDIFORD, III Vice President
CAROL E. RITZER Assistant Cashier
- -----------------------------------------------------------------------------------------------------------------
CALIFON LAURINE J. HAMILTON Assistant Vice President
- -----------------------------------------------------------------------------------------------------------------
CHATHAM-MAIN STREET VALERIE A. OLPP Assistant Vice President
--------------------------------------------------------------------
MARY M. FOLEY Assistant Cashier
--------------------------------------------------------------------
TONYA M. FLOWERS Assistant Cashier
- -----------------------------------------------------------------------------------------------------------------
CHESTER DONNA M. WHRITENOUR Assistant Vice President
- -----------------------------------------------------------------------------------------------------------------
FAR HILLS LINDA ZIROPOLOUS Assistant Cashier
- -----------------------------------------------------------------------------------------------------------------
FELLOWSHIP VILLAGE JANET E. BATTAGLIA Assistant Cashier
- -----------------------------------------------------------------------------------------------------------------
GLADSTONE THOMAS N. KASPER Vice President
--------------------------------------------------------------------
CAROL L. BEHLER Assistant Cashier
- -----------------------------------------------------------------------------------------------------------------
HILLSBOROUGH AMY E. GLASER Assistant Vice President
--------------------------------------------------------------------
TERESA M. LAWLER Assistant Cashier
- -----------------------------------------------------------------------------------------------------------------
LONG VALLEY JOHN G. HARITON Assistant Vice President
--------------------------------------------------------------------
JAMES A. CICCONE Assistant Cashier
- -----------------------------------------------------------------------------------------------------------------
MENDHAM LINDA E. BURNS Assistant Vice President
- -----------------------------------------------------------------------------------------------------------------
NEW VERNON DONNA I. GISONE Vice President
- -----------------------------------------------------------------------------------------------------------------
PLUCKEMIN PAMELA W. STONE Vice President
--------------------------------------------------------------------
LEEANN HUNT Vice President
--------------------------------------------------------------------
MARILYN M. MORROW Assistant Cashier
- -----------------------------------------------------------------------------------------------------------------
POTTERSVILLE PHYLLIS E. HERZOG Assistant Cashier
- -----------------------------------------------------------------------------------------------------------------
CHATHAM-SHUNPIKE KATHERINE M. KREMINS Assistant Vice President
- -----------------------------------------------------------------------------------------------------------------
DIRECTORS OFFICES
- -------------------------- -------------------------------------------------------------
ANTHONY J. CONSI, II LOAN & ADMINISTRATION BUILDING PGB TRUST &
Senior Vice President 158 Route 206 North INVESTMENTS
Weichert Realtors Gladstone, NJ 07934 190 Main Street
Morris Plains, NJ (908) 234-0700 Gladstone, NJ 07934
www.pgbank.com (908) 719-4360
PAMELA HILL -------------------------------------------------------------
President GLADSTONE (Main Office) BERNARDSVILLE
Ferris Corp. 190 Main Street 36 Morristown Road
Gladstone, NJ Gladstone, NJ 07934 Bernardsville, NJ 07924
(908) 234-0700 (908) 766-1711
T. LEONARD HILL -------------------------------------------------------------
Chairman of the Board CALIFON CHESTER
438 Route 513 350 Main Street
FRANK A. KISSEL Califon, NJ 07830 Chester, NJ 07930
President & CEO (908) 832-5131 (908) 879-8115
-------------------------------------------------------------
JOHN D. KISSEL FAR HILLS FELLOWSHIP VILLAGE
Turpin Realty, Inc. 26 Dumont Road 8000 Fellowship Road
Far Hills, NJ Far Hills, NJ 07931 Basking Ridge, NJ 07920
(908) 781-1018 (908) 719-4332
JAMES R. LAMB, ESQ. -------------------------------------------------------------
James R. Lamb, P.C. LONG VALLEY MENDHAM
Morristown, NJ 59 East Mill Road (Route 24) 17 East Main Street
Long Valley, NJ 07853 Mendham, NJ 07945
GEORGE R. LAYTON (908) 876-3300 (973) 543-9630
Director -------------------------------------------------------------
Layton Funeral Home PLUCKEMIN POTTERSVILLE
Bedminster, NJ 468 Route 206 North 11 Pottersville Road
Bedminster, NJ 07921 Pottersville, NJ 07979
EDWARD A. MERTON (908) 658-4500 (908) 439-2265
President -------------------------------------------------------------
Merton Excavating & Paving Co. NEW VERNON Chatham-MAIN STREET
Chester, NJ Village Road 311 Main Street
New Vernon, NJ 07976 Chatham, NJ 07928
F. DUFFIELD MEYERCORD (973) 540-0444 (973) 635-8500
Managing Director -------------------------------------------------------------
Meyercord Advisors, Inc. CHATHAM-SHUNPIKE HILLSBOROUGH
Bedminster, NJ 650 Shunpike Road 417 Route 206 North
Chatham Township, NJ 07928 Hillsborough, NJ 08876
JOHN R. MULCAHY (973) 377-0081 (908) 281-1031
Far Hills, NJ -------------------------------------------------------------
PHILIP W. SMITH III
President
Phillary Management, Inc.
Far Hills, NJ
JACK D. STINE
Trustee
Proprietary House Association
Perth Amboy, NJ
WILLIAM TURNBULL
Director Emeritus
Gladstone, NJ